Citi sees global stocks flat over 2021, downgrades ‘expensive’ US equities

Citi said in an equity strategy note on Thursday that it expects global equities to be flat over 2021, as it cut its rating on US equity markets.

The bank said it was cutting "more expensive" US equities to ‘neutral’ and that it expects better gains in emerging markets and the UK, where it is ‘overweight’.

Citi said valuations are stretched, with global stocks currently trading on 20x 2021 consensus earnings per share, well above the 15x long-term median. US shares look the most expensive on 23x, it added, while the UK is cheapest on 14x.

The bank said ongoing fiscal expansion should drive the US dollar lower this year, which traditionally helps emerging market equities and commodity stocks.

"10year UST yields are expected to rise, driving further value rotation," it said, adding that increasing flows into ESG funds should help more compliant markets and sectors.