* Asset Allocation & Macro Overview (Next issue 26 May 2016)
– A reflation wave resulting from Chinese easing, a dovish Fed/ soft $ mix and
commodity supply restraint has improved risk appetite and pushed stocks back to
the top of ranges. This can persist for a while but from here we are more cautious
given fundamental concerns about global growth and a possible slight
deterioration in the real GDP/ inflation split. We move U/W global equities, O/W
credit and keep our O/W in government bonds.
– We think the commodity rally may be a little more solid fundamentally than the
equity one and have broadened our O/W in commodities to all sectors. This also
makes us more bullish on bombed out EM asset classes like equities, where the
same EPS growth expectations as in DM markets trade for a 27% P/E discount.
Fading QE euphoria in Europe, rich valuations in Europe and the US, and margin
pressures make us more cautious these markets.
* Citi House Views by Asset Class Specialists
– Equities: We see this bull market as tired and old, but not finished. Our index
target implies upside from current levels.
– Credit: To mid-2017, we don’t see too much spread movements from current
levels. European credit outperforms its US counterparts in both HY and IG.
– Rates: Across the major government bond markets, forecasts to mid-2017 are
fairly mixed. EMU bonds outperform.
– Commodities: Oversupplied markets should begin to diminish in 2016. And a
boost in energy prices should also help to secure a floor under all commodities.