When it comes to financial markets in mid-2017, Citibank is not particularly bullish or bearish on any asset class right now.
This simple-yet-effective chart underlines that point perfectly.
It’s Citi’s recommended asset allocation in terms of market weighting looking 12 months ahead.
The range runs from +4, indicating “maximum overweight”, all the way through to -4, or “maximum underweight”.
Clearly, most asset classes are clustered in the middle of that range, at least in Citi’s opinion.
However, if there is an asset the bank likes more than most on a medium-term time horizon, it’s emerging market stocks.
“(They) still look cheap on both absolute and relative valuations, flows are returning, data is outperforming and interest rates falling as inflation undershoots,” says Citi. “All this is positive for further emerging market outperformance.”
From a broader perspective for markets, Citi says that the largest risk for stocks come from a withdrawal of central bank stimulus “which may create corrections and volatility”.
However, if short-term weakness from monetary policy tightening does hit stocks, Citi suggests investors should “buy the dips”.
“Very low CPI inflation pressure makes it unlikely policymakers will want to see a sharp tightening of financial conditions which could hurt economies,” it says.