Customers use ATMs at Citibank branch in New York City.
Reuters -- Citigroup expects global equities to rise about 18% from now through the end of 2023, despite the relentless selloff this year, which may attract investors, although it warns of the risks of an economic slowdown.
The U.S. benchmark S&P 500 index is in a bear market for most of the year, as central banks' war on inflation has led to a steep rise in interest rates and fears of an economic downturn, with global stock trading well below their peak.
The Wall Street bank set a target of 780 points for the MSCI AC World Index Local, which includes emerging markets, for the end of 2023, compared to 679 points it hit on Sept. 30.
With the MSCI AC World Growth Index dropping from 31 x to 19 x, the highly valued stocks are hit hard, according to Robert Buckland, Citi's Robert Buckland, referring to price-to- earnings PE ratios. We think much of the derating is done. Buckland said that valuations have become more attractive for now, with U.S. equities the most expensive and the UK and emerging markets EM the cheapest.
Citi maintained an overweight rating on U.S. stocks, saying that a strong dollar would boost the relative performance of the stocks.
It also backed its neutral rating for EM stocks and overweight rating on UK equity investments.
The UK's economy is in trouble but 70% of overseas exposure and cheap valuations should limit the damage to the stock market, the brokerage said.
Many blue-chip London-listed companies earn a significant portion of their revenue overseas, while the benchmark FTSE 100 index contains a number of heavyweight commodity-related companies.
Citi also raised its rating on the global information technology sector to overweight citing more reasonable valuations and worsening earnings prospects elsewhere.
It said analysts' consensus estimate of a 6% rise in global earnings per share in 2023 may be too optimistic and that earnings could decline 5% next year.