Citigroup Inc (NYSE:C) recently released the quarterly results for its GEMS (global emerging markets) model, and it is Overweight on Russia, China, South Korea (See Ben Graham And Joel Greenblatt Stocks In South Korea) and Taiwan even though the consensus is underweight on the three Asian countries and opinions are decidedly mixed on Russia. Poland has also moved up in the rankings to Overweight, and Turkey was determined to be overweight by the model but Citigroup analysts Markus Rosgen and Yue Hin Pong list it as Neutral nonetheless, overriding their model.
Russia strongest in country radar ranks
“The model continues to have a cyclical, pro-global growth tilt, finding more value in markets such as Russia, Korea, and Taiwan. At the same time, China also ranks highly,” write Rosgen and Pong. “The three Asian markets continue to be consensus underweights but there has been some reduction in the negative positions investors have taken. Russia is always interesting as there are strong views on either side.”
Turkey has lost more total points since last quarter than any other market, mostly because of earnings being revised down and price movement. The analysts also consider it to be a vulnerable economy that could get hit hard by tapering in the next quarter, so they have rated it as Neutral even though the model says that it is overweight.
They’ve done the opposite with Mexico, which the model designates as underweight, because it is one of the few reform/restructuring themes available among global emerging markets, but Rosgen and Pong admit that the position has underperformed over the last quarter. “We need to keep an eye on this one as it may necessitate some rethinking on our part if we want to go against the model.”
Poland’s big improvement is because it had the best EPS revisions among EM and it has gone from 8th to 5th in terms of price growth, though it is now less of a value proposition than it was last quarter.
Attractive sector among EM markets
The most attractive sector among EM markets is auto and components, which mostly benefits Korea, while semiconductors favor both Korea and Taiwan. Rosgen and Pong like banks in China, even though they have serious risks. Mining and materials both scored poorly, which contributes to Latin America and South Africa being Underweight.