This would make even Larry Kudlow blush. It’s amazing how quickly opinions can change from deflation and doom in late August to “super goldilocks” in November. Citigroup strategists issuing a very bullish note on emerging markets AFTER a 23% move in these markets (via the WSJ):
Citigroup strategists upgraded Brazil and Poland’s stock markets to overweight in the bank’s latest research report.The bank recommends the largest emerging market in a report released Friday that updates its asset allocation model. Strategists cite their attractive value and key global position. For instance, Brazil is called an “important beta play on strong emerging market performance.” Poland is also upgraded to match Citigroup’s current overweight in China and Korea.
Meanwhile, Taiwan and the Czech Republic are cut to neutral in line with Russia and India. Turkey is downgraded after recent outperformance to underweight to match South Africa.
Citi expects dollar returns of 35% in emerging markets to the end of 2011, and forecasts the benchmark MSCI Global Emerging Markets index to end next year at 1,500, still below valuation peaks of 1993 and 2007. Strategists say valuations remain far from bubble territory in emerging market equities, although developing world debt may be a different story.
A second round of quantitative easing underpins the positive emerging market fundamentals, says Citi. The bank notes zero U.S. interest rates, a weak dollar, higher growth in the developing world strong funds flows.
“The weak, but not recessionary, macro situation in developed countries is a ‘super-Goldilocks’ environment; we see the best parallel as the massive run in global emerging markets in 1991-93,” according to the report.
Within emerging market sectors, Citi raises financial to overweight, to match informational technology, consumer discretionary, and health care. Materials remain at neutral, while Citi is underweight energy.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.