LONDON (Reuters) – U.S. inflation-adjusted “real” yields will rise around 70 basis points from current record lows around -1.2% by year-end, Citi said on Wednesday, citing this as a reason to cut its recommendation on U.S. stocks to “neutral” .
“We factor this bearish bond view into our global equity strategy. Amongst regions, we downgrade the Tech-heavy US to Neutral. We upgrade Japan to Overweight, where valuations and cyclical exposure should be supportive,” Citi told clients.
It said the real yield forecast of -0.5% was consistent with the MSCI world index trading around 18 times forward EPS, compared to 19 times at present while MSCI’s World Growth index could derate towards 25 times from the current 29 times.
(Reporting by Sujata Rao; editing by Danilo Masoni)