Citigroup: Buy in the sell-off – The great opportunities created by the ‘healthy’ correction

Her Eleftherias Kourtali

Buy this dip, that is, buy in this dip in the stock markets, especially in shares outside the US, Citigroup recommends to investors in its report today. As he notes, the rapid de-rating of “growth” stocks may slow down as real bond yields stabilize (ie yields plus inflation), but will likely continue later in the year, while investors worried about rising interest rates and / or the sharp global economic slowdown should look at defense stocks and position themselves in markets, stocks and “value” sectors.

The American bank points out that the beginning of 2022 was difficult for the markets. The MSCI AC World Global Index has fallen 6% since the beginning of the year, while at the regional / country level, S & P, until recently the international leader in yields, has been hit the hardest (-7%).

At industry level, the MSCI World IT global index showed the largest decline (-11%), while Energy (+ 8%) and banks (stabilizers for now)) had the best performance this year. The MSCI World Growth Index is down 10% in value and growth stocks, while the value trades are performing much better. Last year’s biggest loser, emerging market shares fell just 1%, while the MSCI Value Index fell 2%.

The Bear Market Checklist of Citigroup suggests that investors should buy this otherwise healthy fall in markets, points out Citi. Valuations seem “strained”, especially in the US, but other factors seem more favorable, such as capital flows or merger and acquisition activity that do not move too far.

Specifically, with regard to the first factor that is expected to significantly affect the course of the shares and which triggered the current sell-off, Fed interest rates, that is, Citi strategic analysts expect real yields on 10-year U.S. bonds to reach -0.25% later this year, up 85 basis points from December 2021 levels. They had already risen 50 percent. basis points by mid-January, suggesting that some short-term correction is possible.

Growth stocks are particularly sensitive to real returns. The real yields on 10-year US bonds at -0.25% mean that MSCI USA will trade with a 12-month p / e index at PE 20x (from 21x today) and the MSCI World Growth growth stock index with p / e at 24x ( today 26x), with the de-rating reaching 4% and 8% respectively. However, as he points out, value trades are much less sensitive in such an environment.

As for the second factor, that of slower growth, Citi economists expect global GDP growth to slow from 5.7% in 2021 to 4.1% in 2022, well above the medium-term average. The growth of earnings per share (EPS) of the shares of the global index MSCI AC World is expected to slow down from 54% in 2021 to 7% in 2022.

At this point it is worth mentioning how According to Citi, earnings per share for Greek shares are expected to jump by 37.1% this year which is also tthe largest increase internationally, the moment that Greece is generally considered a trade of value. By comparison, the profitability of companies in Europe is expected to increase this year by 5.4%, in the US by 7.9% and in emerging markets by 6.3%.

According to the American bank, the circular shares have also started to decline as the current sell-off has expanded. Perhaps this reflects the short-term view of the market despite the expectation of a sharp economic slowdown.

In this context, and especially if the correction continues, Citi recommends buying stocks such as the British FTSE 100 or more generally European banking stocks. At the same time, it places in its favorites trades, the basic consumer goods, health services and telecommunications in the markets of Britain and Japan, which are expected to be less sensitive to the increase of interest rates but also to the slower economic growth.