Wednesday August 8, 2012
Citigroup cautious on global equity markets in H2 on political factor
KUALA LUMPUR: Citigroup Inc is maintaining its cautious stance on the global equity markets for the remainder of the year as politics continue to overshadow policy.
The financial services group's senior investment strategist of wealth management for Asia-Pacific Haren Shah said at a briefing that the current political impasse in the United States and eurozone would have to be solved in order for there to be more clarity in the markets.
“There are a lot of changes and uncertainty happening on a global scale. How the markets react will be a function of many other things.
“This is the year of politics, especially in the second half,” Shah said.
US politicians would have to come to a compromise as the fiscal cliff of automatic tax rises and budget spending cuts loom.
“The congress needs to tackle it,” said Shah. Fiscal deficit is projected to fall by US$607bil if all scheduled tax increases and spending cuts are implemented.
Furthermore, he said politicians in the eurozone needed to show that action was being taken to solve its problems. “There have been 18 summit meetings so far, and a lot has been talked about, but no action has been taken,” Shah said.
He added that there was a need to have a balance between growth and austerity in the eurozone. It is noteworthy that Citi analysts see a probability of between 50% and 75% that Greece will exit from the eurozone in the next 12 to 18 months.
For Malaysia, Citi analysts are positive on the construction sector due to spillovers from the Klang Valley Mass Rapid Transit project.
Citibank Bhd head of research and investment strategist, David Chua, said: “We are also positive on the oil and gas sector as Petronas (Petroliam Nasional Bhd) have said they will be spending RM300bil in the next five years.”
Chua added that he was also bullish on the consumer sector due to the strong domestic consumption.
He said Malaysia was much better positioned in attracting foreign direct investments in terms of employment, cost, and technology. “We are cheaper than China in certain sectors. Therefore, we think we stand a benefit to do so in the near future. From the news flows you can see how Pemandu has been able to attract further investments into Iskandar. So we continue to see a lot of flows coming in,” Chua said.
Citi's target for FTSE Bursa Malaysia KLCI remains at 1,640 points. “We think it will remain volatile, but flat at least until year-end. Elections are key to how markets will perform,” he said.
Citi analysts are confident that the country will achieve its targeted gross domestic product (GDP) forecast of 5% this year, with next year's GDP likely to be set at 5.3%.
“As we enter the second half of 2012, investors should stay on course and respond to events as they occur even though markets remain edgy.
“It is important to remain focused and think long term asset allocation, as this would help investors prevail in these trying times. Stay defensive, look for yield and value in your allocation,” said Shah.
Although Shah does not expect a global recession, he anticipates uneven growth globally. “Markets are likely to remain range bound but volatile, punctuated with periods of fear and optimism,” he said.
He advises investors to maintain a balanced approach in their asset allocation and keep their faith in long-term returns, amid the challenging economic environment.
Citi's investment themes for the second half of the year are in fixed income, opportunities in developed countries, emerging markets, gold and in taking advantage of the macro economic uncertainty.