Monday, July 15, 2013

Citi Likes Emerging Market Stocks

Citigroup predicts a nearly 27% upside to emerging markets stocks in the next year.Our main reasons for optimism:consensus is too bearish/underweight emerging markets,liquidity is ample,economic surprises are improving,earnings are outperforming developed markets,and valuations look cheap,Citi said in a note. The Federal Reserve program has propped up emerging market currencies,equities and bonds as it pumped liquidity into the financial markets. The emerging markets central banks' balance sheets should provide enough liquidity to take up the slack of a Fed withdrawal.In aggregate,the balance sheets of growth emerging markets central banks are still expanding by 6.1% on a year-on-year basis .A strong relationship exists between the growth rate of the asset side of central banks' balance sheets and price to book valuations.Expand the central banks' balance sheets and price to book valuations follow,the note goes on to say. Citi favours Asia over the Middle East and Latin America.It prefers China,South Korea and Taiwan in Asia. iShares China 25 Index Fund(FXI),iShares Emerging Markets Index Fund(EEM)

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