Global shares could see muted returns in 2024 before rally continues mid-25: Citi

Investing.com -- Citi analysts predict that global equities may experience flat returns through the end of 2024, despite renewed hopes for a soft economic landing following a strong U.S. jobs report.

"We remain focused on the balance of risks," Citi said in a note Monday, noting both upside and downside factors for global markets.

According to the analysts, factors such as potential rate cuts, solid U.S. growth, and China’s stimulus could justify further gains. However, risks remain, including a potential U.S. economic slowdown, geopolitical tensions, and earnings downgrades.

Citi has set a more constructive outlook for the medium term, projecting a 5% upside for the MSCI AC World Index by mid-2025.

Citi’s forecast for global earnings-per-share (EPS) growth is +10% for 2024 and +8% for 2025. The firm’s top-down models align with the consensus for 2024 but are slightly below for 2025.

"Analysts see positive EPS growth across all major regions in 25E, with acceleration expected in both the U.S. and Europe," Citi stated. However, they warned of ongoing downgrades across major regions.

Citi also highlighted the appeal of cyclical stocks, recommending an overweight in U.S. and European stocks, particularly in sectors such as communication services and financials.

"We upgrade Europe ex-UK to Overweight on China exposure, policy easing, and relatively attractive valuations," the note explained. Japan, however, was downgraded to underweight due to "negative earnings momentum" and yen strength.

"Japan moves to Underweight (from Overweight). Recent political volatility is probably not a game changer for Japanese assets, but Japan’s strong run of EPS upgrades is finally cracking, driven in part by JPY appreciation," the bank explained. "Recent momentum in China stocks could also lead to some flow rotation away from Japan."

Looking ahead, Citi emphasized a balanced approach, favoring both quality and cyclicality in stock selection. Despite the current challenges, the firm remains optimistic about market growth in 2025, driven by improving earnings and modest valuation adjustments.

Source: Investing.com