Citi thinks people should go long everywhere, which guarantees that someone is going to be disappointed. The most recent volume of Citi’s Global Equity Quarterly predicts global EPS growth of 7 percent through the end of 2014, and while some markets look stronger than others, they predict growth everywhere.
Equity strategists are bullish on all the major markets
“Citi equity strategists are bullish on all the major markets to end-2014,” the report says. They favor Europe and emerging markets generally, the UK and Asian EM more specifically, and they predict lower returns in the US and Australia, but still expect decent returns.
“An acceleration in the world economy should help global EPS to grow 7% in 2013 and a similar amount in 2014,” the report says. “A welcome prospect given the earnings stagnation since 2011.” They expect that EPS growth, greater risk taking, and rerating will lead to 18 percent growth in global equities by the end of next year, and the only major downside risk is the impact of tapering.
The problem with this kind of robust optimism is that even if it’s correct to predict strong growth in each major market next year, that doesn’t mean you should expect growth in every major market. Put another way, the odds of unexpected problems in any specific market might be low, but the odds that we will see some unexpected problems somewhere are much higher. The chances that any one part in your car will break this year might be extremely low, but the odds that you will need to see a mechanic are not.
And there’s no shortage of problems that could blow up next year. Fed tapering could hit some economies harder than we expect (or as hard as the bears already expect), Chinese debt could finally become a problem, Eurozone sovereign debt crises could reassert themselves, and this all assumes the US federal government is even functional.
Citi’s analysts understand all this
Of course Citi’s analysts understand all this, they’re simply compiling the opinions of each of their market experts independently. But when analysts are bullish about everything, it just means that no one has any idea where the next big problem will be.