Global equities now trade on a trailing price-to-earnings ratio of 21, well above long-term median of 17; however stock market valuations look less extended when compared to bonds where yields are still very low by historical standards, Citi strategists including Robert Buckland write in note.
Citi sees increased volatility and downwards corrections likely, but no major downturn in equity markets as only 3 out of 18 of Citi’s ‘Bear Market Scorecard’ indicators currently flashing red
Citi expects all major markets to report healthy earnings growth in 2017, which would be the first synchronized upturn since 2010.
However, investors need to see evidence of concrete policy action to re-engage with reflation trade
“If this is not forthcoming, we could see bond yields fall further”.
Political backdrop still tense, with tensions in Middle East and Asia and ongoing uncertainty surrounding upcoming European elections.
Citi anticipates further gains of about 5% in global stocks over the remainder of the year, helped by optimistic economic forecast, solid improvement in earnings in 2017
source: Bloomberg
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