Citibank favours Asian equity markets in H2
CITIBANK prefers Asian equity markets, especially China, India and Indonesia, according to its market outlook for the second half of this year.
All major regional equity markets are expected to deliver positive earnings growth in 2017, a phenomenon last seen in 2010, on the back of a modest recovery in global growth and oil prices, Adrian Weiss, regional head of wealth management advisory for Citi Asia Pacific, said yesterday.
With healthy double-digit earnings growth forecast for emerging markets, Europe and Japan, the more cyclical markets are expected to outperform the United States in 2017, he said.
Prices of equity in emerging markets are attractive, as the average price-to-earnings (P/E) ratio is only 13, compared with 19 in the US, he pointed out.
Economic growth in emerging Asia is expected to be relatively high and interest rates remain low, which will support equity markets.
China’s gross domestic product will grow by 6.6 per cent this year compared with the estimated global growth rate of 3 per cent, Weiss said.
He does not think China will face a hard landing as the government has stepped up measures to prevent banks from excessive lending during economic slowdowns. Citi analysts have projected high returns from Indonesia’s equity market.
They also expect Indian GDP to expand by 7.5 per cent this year and 7.9 per cent in 2018.
European equity markets will also give reasonable returns but lower than Asian markets.
Among economic sectors worldwide, Citi recommended the financial, technology and energy sectors.
For bond markets, Weiss prefers Indonesia, after Standard and Poor’s recently raised the country’s credit rating.
He said the gold price probably peaked in May and was unlikely to rise in the second half of the year. However, oil prices may rise to US$60-$65 per barrel in the second half.
He recommended cautious optimism amid steady global economic growth.
He said risks have been reduced as US President Donald Trump did not wage a trade war with China as markets previously feared. Instead, Trump signed a trade deal with China.
However, Trump’s promise of a corporate-tax cut has not yet happened. The cut may take place in the latter half of the year but it may not be as much as previously expected. Political headlines in the US help keep slid on dollar gains but next Fed rate hikes may limit the dollar’s downside, he added.
