Stocks still attractive despite correction, say Citibank analysts

The market correction triggered by a sell-off in New York on Friday would be limited, in the range of a 6 per cent to 10 per cent global market average, Shrikant Bhat, Citibank’s managing director and regional head of investments, said yesterday.
His comments came amid the tumbles in stock markets worldwide on fears that US interest rates may rise more than earlier market expectations.
For Bhat, the sharp falls in global stock markets are not that surprising given the run-up in share values at an average 6 per cent to 7 per cent in January was relatively high for just one month.
He forecasts that the markets will continue to perform well this year due to sound economic fundamentals.
Citi analysts estimate the global economy will grow 3.4 per cent in 2018, the highest since 2010. They also project that the Thai economy will expand 3.8 per cent this year.
In regard to equities, Bhat believes that global corporate earnings will grow 9 per cent on expectations that listed companies will see their net profits increase.
He expects earnings growth in emerging markets to be 11 per cent, putting these markets on track to outperform developed markets for a third consecutive year.
“The current market correction will allow new investors to enter the stock markets,” he said.
The Stock Exchange of Thailand Index dropped 1.21 per cent to 1,788.43 points yesterday.
Bhat said Citibank is overweight emerging market equities, especially in Asia.
Among individual countries, China and Malaysia stand out, the latter benefiting from infrastructure investment along with a rise in private investment.
Economic and tax reform in India will also be positive for the Indian economy, he said.
Bhat said the US dollar had peaked in value and the weakening dollar trend would continue.
The US fiscal position is negative for the dollar’s value, he said.
“The fiscal deficit for the US has been increasing and the recent fiscal budget, which include tax cuts, is also fiscal negative for the US, and the indicated tax reforms should make demand for the US dollar to go down,” said Bhat. Investors could seek higher returns from bonds and equities in emerging markets, so funds will flow into these markets, he noted. 

Inflation under control 
He did not think the expected US rate rises would strengthen the dollar. The next rate hike is not expected to be high, since inflation is under control within the targeted 2 per cent band, he said.
 Bhat said a cut in crude oil output by OPEC members would be offset by rising production of shale oil in the US, so Bhat did not worry about possibility of oil price-driven inflation. Were this scenario to arise, it would be a serious issue that would lead to a sharp rate rise in the US.
A weakening dollar is likely to help anchor the emerging Asian currencies, including the baht, according to Citibank.
Bhat expects the euro to appreciate over the medium term given a strengthening economy, persistent equity inflows and a high current account surplus.
Don Charnsupharindr , retail banking head of Citibank Thailand, suggested that Thai investors should diversify their investments.
 Asked whether Thais should invest more abroad following the central bank’s relaxation of regulations governing capital outflows, Don said that most Thai investors still prefer investing with wealth management managers locally who can give them timely advice. He claims that Citibank brings in many types of foreign assets classes for local investors to choose from.