SINGAPORE (Oct 5): Citi Research says the eight-year bull market may be ageing but it ain’t over yet, forecasting a 10% gain for global equities by end 2018.

And with cheap valuations, good earnings momentum and the prospect of a weaker US dollar, Citi has also raised Emerging Market equities back to “overweight”.

An improving Eurozone economy is also keeping Citi positive on Europe ex-UK.

In a Thursday report, 2017 looks like being the first year since 2010 when all major regions report higher earnings.

“We expect the same in 2018, with global EPS up 9%,” say the strategists who advise investors to buy into any central bank-induced weakness.

“Lower US$, higher US treasury yields, higher credit spreads, synchronised EPS growth, free cashflow (FCF) yield. These inputs help drive our current global equity recommendations,” says Citi.

Citi’s global strategy team admits that although valuations for global equities look stretched, trading on a PE of 20x compared to a long-run median of 17x, they look cheaper compared to bonds.

Meanwhile, an accelerating global economy should benefit cyclical stocks.

“We raise Materials to Overweight, replacing Energy. Higher bond yields should lift global Financials. We are Overweight IT despite the sector looking expensive on traditional valuation metrics. It still looks reasonable on a FCF basis,” says Citi.

The key risk to Citi’s view is a sharp slowdown in the global economy.

“Our EM Overweight would be vulnerable to a sharp increase in the US dollar,” adds Citi.