Citi: The three trades that ‘move’ the markets and why you should bet on them – The attractive position of Greek shares

Her Eleftherias Kourtali

Fund flows reveal three dominant trades at the moment and from the beginning of 2022, as Citigroup points out, the shift from bonds to shares, from the US to other markets and from “growth” shares to “value” shares. However, this triple rotation remains quite small compared to the historical levels and Citi expects that the inflows will be further strengthened by supporting these strategies as well as the attitude that it maintains, ie the buy the dip (stock market dip) and the overweight in banks.

Some key market issues are unfolding as expected in 2022, he notes. Central banks are becoming more aggressive and bond yields are rising. High-rated stocks, such as the NASDAQ Index, are vulnerable. The value shares are kept at much better levels. As Citi points out, he expected real bond yields to rise this year and “growth” shares to fall, but he did not believe it would happen so quickly.

Analyzing the three dominant trades, the American bank points out the following:

Rotation # 1: Turn from bonds to stocks – The bonds are on a good path for two consecutive months of outflows, while the shares have stable inflows. This rotation remains small in historical context and there is room for significant reinforcement.

Bond funds are heading for two consecutive months of outflows ($ 32 billion), according to EPFR data. During the same period, equity funds recorded inflows of $ 153 billion, spread by about 80% -20% between developed and emerging markets. Although investors accumulated a record $ 913 billion in stock flows last year, the cumulative transition of $ 850 billion in shares from 2007 still looks low, at least compared to $ 4 trillion. dollars in bond funds.

Is this the principle of the long-awaited (at least by stock analysts) “Big rotation” away from bonds and stocks? After decades of falling yields, there are finally the conditions for a more sustained recovery in the global interest rate cycle and consequent bond outflows. Citi economists also expect the Fed to raise interest rates by 150 basis points this year (followed by steady increases in 2023), and even the ECB is expected to tighten its policy next year. The data indicate margins for further rotation in the short term.

Rotation # 2: Turn away from the US and other international markets “Stock inflows have been strong in all geographical areas lately, but investors are beginning to show a preference for markets outside the US,” Citi said.

So the capital flows to the shares. But are they flowing into cheaper markets, such as the Emerging Markets or the British FTSE 100, or more expensive trades like the US? Both seem to benefit. For example, emerging market equity funds showed strong inflows in January. However, inflows to US funds were also healthy, totaling $ 59 billion. This is a rare “phenomenon” historically, as such a drop in shares would usually be associated with outflows.

However, it is important to note, as Citi points out, that inflows to funds outside the US have exceeded those of US funds for seven of the last eight months. So investors seem to be diversifying outside the US and the rotation of flows still seems small compared to the past, so there may be more room for growth in this trade as well.

Rotation # 3: Turn from “growth” stocks to “value” stocks “Value” funds have seen strong inflows compared to “growth” funds this year. However, this still seems small compared to the rotation that occurred in the first quarter of 2021, for example.

In recent months, cheaper “value” stocks have outperformed more expensive “growth” stocks. Since last November, the MSCI Global Value Index has been trading sideways, while the growth index has fallen by about 10%. Is this due to capital flows? The answer is yes, notes Citi.

For seven consecutive weeks, “value” stocks have seen inflows, while “growth” stocks have seen outflows over the same period. However, inflows into “value” in 2022 are still small compared to those during the “value” rally in early 2021. Cumulative flows reached $ 70 billion in 2021, compared to this year’s inflow of $ 23 billion. .

Further margins for these trades to “run”

Ongoing changes in capital flows could further strengthen these three rotation trades, Citi notes. Global stocks still look cheap against bonds. Indices of the rest of the world look attractive to the US. And value still has lower valuations relative to growth.

In short, the factors driving capital flows behind these market rotations remain relatively mediocre. As more and more funds will chase the trades that have been the winners since the beginning of this year, the above three rotations have room for significant further growth. And although the rotation in the first quarter of 2021 stopped soon, Citi estimates that the corresponding one in the first quarter of 2022 could continue further.

The image of Greek shares

In this context, Citi presents its new estimates for the Greek shares, with the Greek market, to be noted, to be considered a market of “value” shares and a value trade, as especially the banks are an important part of the daily turnover but also of the placements of investors who “look” at the ATHEX. After all, a significant part of the overperformance of the banking sector and the positive returns of the ATHEX, which is at the top of returns in Europe, is due to this rotation in “value”.

Thus, the American bank sees that earnings per share are expected to jump by 37.4% this year (including banks), which is the highest rate in the world. In 2023 it expects an increase of 20.8% in Greek EPS.

By comparison, the profitability of European companies is estimated to increase in 2022 by 5.2%, of emerging markets by 7.4%, of developed companies by 7.4% as well, and of American companies by 7.5%, while on average internationally, profitability growth will reach 7.4%.

The estimated P / E index in the Greek market for 2021 was set at 16.3x, while for 2022 it will move to 11.8x and in 2023 to 9.8x. By comparison, the P / E in the US market, from 21.9x 2021, will move to 20.3x in 2022, while in Europe from 14.9x last year, to 14.4x this year.

Finally, at the level of 3%, the estimated dividend yield of Greek shares is formed at the same time as the average in Europe, but above the USA, the world markets and the emerging markets, which is placed at 1.3%, 2% and 2.9% respectively.