On the back of enticing valuations and the prospect for a weaker US dollar in the period ahead, equity strategists at Citibank now like the look of emerging market stocks, slapping an overweight recommendation on the region.
“Our emerging market (EM) strategist, Markus Rosgen, has been highlighting attractive valuations for some time. However, we were being held back by the prospect of US dollar strength which is usually not helpful for EM equities,” says the bank.
“As our FX strategists no longer forecast a strong US dollar, this should remove one of the major headwinds for EM equities. We upgrade to overweight.
“Sure, the structural problems EM economies are facing are still significant but we think a lot of bad news is already in the price, perhaps more so than in developed market equities.”
Rosgren prefers Asian markets to those in Latin America and CEEMEA nations.
The chart below, supplied by Citi, suggests that the present book value of the MSCI emerging markets index currently sits at levels that have previously heralded renewed strength in emerging market stocks, at least since the turn of the millennium.
The MSCI emerging market index has endured a tough period over the past 18 months, falling 33.1% since early September 2014.
From its peak in November 2007, it has slumped by 45%.