Go long emerging market stocks but be wary of chasing further gains in government bonds, particularly in developed markets.
That’s the view of Citibank’s global asset allocation team who say that emerging market stocks will continue to outperform all other major asset classes over the next 12 months.
This chart from Citi shows its current asset allocation view on a 12 month time horizon.
It’s pretty easy to understand.
An allocation of +4 is deemed by Citi to a “max overweight” position, another way of saying it’s likely to be the best bet over the next 12 months. At the other end of the spectrum, a -4 allocation is described as “max underweight”, a polite way of saying avoid it if you have the choice.
Basically the more positive the number, the better the returns are likely to be, and vice versa.
Based on Citi’s October allocations, it’s clear that it favours one asset class over all others during the next 12 months: stocks.
“Our tilt here is +3 overweight in emerging market equity markets whilst we are only slightly overweight developed market stocks,” it says.
“In the government bond space, we are underweight all developed market government bonds, but less so in US.”
For corporate bonds, it retains an underweight rating and is neutral on commodities in the year ahead.
Finally, for cash, it has a +1 allocation, or slightly overweight.