July 6, 2020 / 6:20 AM / a month ago

Citi expects stocks to go sideways for a year, suggests defensives

FILE PHOTO: A woman walks past a Citibank logo displayed outside the Citibank Plaza in Hong Kong July 28, 2014. Picture taken July 28, 2014. REUTERS/Bobby Yip

SINGAPORE (Reuters) - World stocks will probably tread water for a year, according to Citi (C.N) strategists, who recommend a more defensive portfolio in the face of the fallout from the coronavirus pandemic.

Citi equity strategists are recommending clients play it safe by holding U.S. stocks and healthcare shares and reducing exposure to bank shares, as earnings are likely to take a while to recover from the coronavirus fallout.

“The bullish push from $6 trillion of global quantitative easing is likely to cancel out the bearish drag from the ongoing lockdown,” the investment bank’s equity strategists said in a note published late on Sunday.

Restrictive measures imposed to contain the virus has ravaged economic activity and hurt demand for risky assets in recent months, but their impact has been offset somewhat by huge asset buying from central banks, which has supported confidence.

“We would not chase markets higher from current levels,” the strategists said.

The note forecasts the S&P 500 .SPX to be at 3,160 points in mid-2021, about 1% higher than Friday's close. It expects other major markets from Australia to Europe and Japan .TOPX to be similarly steady.

The outlook is broadly similar to that outlined by HSBC Private Banking last week, and a touch more downbeat than Credit Suisse which is slightly more positive on equities.

Citi said financials will struggle with prolonged low interest rates, and are best avoided, in favour of defensives such as health care. Citi upgraded its recommendation for the materials sector to overweight and downgraded consumer staples.

Reporting by Tom Westbrook; Editing by Ana Nicolaci da Costa

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