The next 15 per cent pullback in global equity markets should be viewed as an opportunity rather than the end of a seven-year bull market, says Citi.
Speaking in Sydney yesterday, Citi chief global equities strategist Robert Buckland said the current seven-year bull market in global equities is "old but not finished".
While he is on "high bubble alert" at the moment, none of the parameters are falling into place to suggest the bull market is about to come to an end, Mr Buckland said.
"I just don’t see enough boxes being ticked that the next sell off, whenever it happens, is the beginning of the next profound 50-60 per cent bear market – as opposed to a chance to get in," he said.
Citi is projecting that global equities will rise by 10 per cent by the end of 2017, Mr Buckland said.
The global bank has a 'Bear Market Checklist' of 18 indicators ranging from valuations, investors sentiment, corporate behaviour and credit markets – only 3.5 of which are currently 'flashing red'.
By comparison, in March 2000 17.5 indicators were 'flashing red', Mr Buckland said – and in October 2007 13 of the sell signals were red.
"There is no need to chase at the end of a bull market, but you should remember to buy the dips," he said.
However, there are "some areas of concern" in global equity markets, he said. First, price/earnings (PE) ratios for global equities are currently higher than October 2007 at 21 times.
Global companies are also highly leveraged, and high-yield and investment-grade credit spreads are wide at 516bps and 138bps, respectively.
Credit spreads have "come back" since February 2016, when the European Central Bank (ECB) stepped up its bond-buying program, Mr Buckland said.
"The ECB stepped in and said ‘Stop. We are going to buy corporate bonds in Europe'," he said.
"When you get someone coming in and saying they’re going to buy potentially 25 per cent of an asset class that at that point was in freefall, it tends to stop the sell off."
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