Citi Strategists Say Buy the Dip in Stocks on ‘Healthy’ Returns

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(Bloomberg) — It’s time to buy the dip in stocks, particularly in Europe and emerging markets, on their appealing valuations after a steep global selloff, according to strategists at Citigroup Inc (NYSE:).

Strategists led by Robert Buckland said in a note that Citi’s bear market checklist is currently warning about only six out of 18 red flags, which compares with 13 red flags prior to the global financial crisis and 17.5 red flags before the 2000-2003 selloff. In the past, investing in equities when the indicator of market red flags dropped to similar levels has generated “healthy” 12-month gains of 31% on average, they said. 

The US stock market triggered more concerns on Citi’s checklist during the peak of last year’s global equities rally compared to Europe and emerging markets, which makes strategists favor the latter on cheaper valuations. The and are each down about 16% this year in US dollar terms, while the MSCI EM Index has fallen 17%.

“For those investors concerned it is too early to take the plunge in the US market, maybe buying dips in Europe and EM is a safer call,” the strategists wrote in a note. 

Global stock markets have been roiled this year on fears that hawkish central banks will tip the economy into a recession at a time when inflation is surging. The strategists are divided on whether it’s time to get back into equities, with the likes of Morgan Stanley (NYSE:) and Bank of America Corp (NYSE:). saying that there may be more losses to come, while BlackRock (NYSE:) Investment Institute cut developed-market stocks to neutral this week.

Still, investors may need to be patient as Citi’s checklist, which among other factors includes valuation, credit spreads, analyst bullishness, profitability, initial public offerings and deal activity, isn’t a market timing indicator, strategists said.

©2022 Bloomberg L.P.

 

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