Citi strategists have urged the bank’s clients to use the latest pullback in global equities and increase their exposure to this group of risk assets.
The strategists also made adjustments to the bank’s portfolio by reducing defensiveness and favoring cyclical stocks in the current economic landscape.
This shift comes as central bank interest rates reach high levels, the economy experiences a mild slowdown, and inflation gradually decelerates.
Key moves include:
- Downgrade UK stocks to underweight due to market’s defensive nature, while the cyclical areas are exposed to oil;
- Global energy stocks are downgraded to underweight in alignment with Citi's view of oil prices declining to $70 per barrel;
- Healthcare stocks are downgraded to neutral, and consumer staples are downgraded to underweight;
- Growth stocks are seen as oversold, particularly with the potential risk of higher interest rates abating, leading to an upgrade of information technology stocks to overweight;
- Japan, a cyclical market, is upgraded to neutral as its GDP and earnings per share continue to appear resilient;
- Citi maintains a preference for Europe and Emerging Markets over the US, anticipating a higher likelihood of a US soft landing and stabilized Chinese growth, which should benefit cyclical markets;
- Citi forecasts an EPS slowdown rather than a full-blown recession this year, which is expected to favor cyclical assets; and
- The recent market selloff has created an attractive entry point, with mid-2024 targets suggesting 15% upside for the MSCI All-Country World index.
Citi's Bear Market Checklist advises buying on dips and is currently showing 6 out of 18 red flags. In early February, the strategists accurately predicted that European stocks would continue to outperform their US counterparts.
“We continue to prefer Europe and EM over the US, as increased chances of a US soft landing should support Cyclical markets,” they said in a note.