Daily Management Review

Citi Says The Next Big Downturn Is ‘Not Imminent’ And Sees 5% Uptick For Global Stocks By Year-End


Citi Says The Next Big Downturn Is ‘Not Imminent’ And Sees 5% Uptick For Global Stocks By Year-End
According to economists at Citi, as any lingering concerns of an impending economic collapse diminish for the global economy, by the end of the year it is expected that global equities will rise 5 percent.
"We expect global equities to rise 5 percent by the end of 2017 (and) with fundamentals improving, valuations reasonable and interest rates still low we upgrade Europe, excluding the U.K., to overweight," Citi economists said.
The first synchronized upturn in almost a decade could be noted and represented by all major markets which are expected to report healthy earnings per share growth in 2017 according to the forecast by Citi analysts. The bullish outlook has been accorded, among a number of factors, to subsiding political risk in Europe, increased commodity prices and an uptick in economic growth globally, according to the global bank's analysts.
The "Bear Market Checklist" is used by the bank to compare global market variables at times of historic financial crises to the current day and Citi credited its own in-house “Checklist" to make the forecast.
"Right now, only 3/18 factors are flashing sell compared to 17.5/18 in 2000 and 13/18 in 2007," Citi analysts said in the note.
Le Pen victory 'a systemic threat to global financial markets', they say.
It would be unwise for investors to overlook the ramifications of France's upcoming general election, stressed Citi economists despite the bank's bullish equities outlook.
For the first round of the two-stage process, neck-and-neck with centrist Emmanuel Macron is far-right presidential candidate Marine Le Pen.
Citi analysts argued Le Pen posed an even greater risk to financial markets than Brexit because due to her campaign pledges, Le Pen has advocated for France to break away from both the European Union and the European Monetary Union (EMU).
"(A Le Pen victory) would be an even bigger issue than the U.K. leaving the EU. It could lead to a break-up in the single currency and represents a systemic threat to global financial markets," Citi economists said in a note.
Before electing a new premier on May 7, French citizens are due to cast their first votes on April 23.
While conceding that U.S. President Donald Trump's surprise election victory as well as the Brexit referendum meant investors should not take the French vote lightly, Citi analysts estimated Le Pen had a 20 percent chance of emerging victorious in little over a month.

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