Emerging Market Shares Look "Very Cheap" While Tech Stocks Are Also A Buy, Says Citi Analyst

Beata Manthey, Citigroup Inc.’s C head of equity strategy, doubled down on the bank’s bullish stance for global and in particular emerging market equities Wednesday, despite almost a year-long sell-off in the sector.

She also said that the bank had been buying up tech stocks as fears of effects of a US recession now look overblown. She made the comments on an interview on Bloomberg TV Wednesday.

“Putting geopolitics aside, the macroeconomic risk or the balance of the risks [of investing in global equities] has improved,” said Manthey.

“I don’t want to sound overly bullish as the data still looks bad, but it looks less bad than what we thought it would so the global economy will continue to improve despite these risks more than we expected it to do.”

Among emerging market stocks there has been a $1.8 trillion sell-off this year, taking stocks to their lowest levels vs. the S&P 500 since the 1980s. Manthey said that this made emerging market companies particularly attractive to Citi’s bargain hunters right now.

“They look very cheap and this is part of our strategy. We’ve been overweight the US all summer … now it’s time to move to more cyclical markets,” she said.

“Going forward, you should be buying into the more underperforming [markets] and markets [that are] depressed from a valuation standpoint.”

The iShares Asia 50 ETF AIA, iShares Asia/Pacific Dividend ETF DVYA, iShares Emerging Markets Dividend ETF DVYE and iShares Emerging Markets Infrastructure ETF EMIF are all lower year-to-date vs. a rise of 14% for SPDR S&P 500 ETF Trust SPY and 2% for Dow Jones Industrial Average ETF Trust DIA in the same period.

While geopolitical problems, in particular the Israel-Palestine war, would continue to present risks to global stock investors, Manthey said that “the market always weighs the balance of the risks” and as such most of the downside is already priced into stock values.

With respect to interest rates, Manthey cautioned that it was “overly-optimistic” to say that the Federal Reserve and other central banks around the world would be easing monetary police any time soon.

Citi has recently put an underweight weighting on energy stocks as a result of its concerns over global growth in the face of these sustained higher rates. However, with the situation in Gaza, Manthey conceded that call may turn out to be the bank’s most “at risk” one, as oil producers such as Exxon Mobil Corp XOM, Shell PLC SHEL, Chevron Corporation CVX, Conoco Phillips COP and BP plc BP get a boost from higher prices due to the escalating conflict.

Manthey added that Citi has now turned bullish on tech, after previously being underweight on the sector as a result of concerns about the state of the US economy.

Last year, Citi thought that tech stocks were overbought relative to the underlying US recessionary concerns, but it has now reversed that position and is buying back in.

Year-to-date, Apple Inc. AAPL, Microsoft Corp. MSFT and Alphabet Inc. GOOG are all over 40% higher, while Meta Platforms Inc. META and Nvidia Corp NVDA have surged over 1.5 times and over 2 times, respectively, but dipped last month in a sell-off.

“Tech has proven more resilient than thought and we think the sector looks oversold so we bought back into it a week ago,” said Manthey.