Citigroup Bucks Trend of Bullish Views for Asia in 2020

(Bloomberg) -- December equity trading has begun on a positive note, with Asia’s benchmark shooting up on a surprising recovery in China’s manufacturing data. But while market players are cheering, some observers are warning that things might not be all rosy ahead.

Citigroup’s global strategy team is one of these, saying it’s not the right time to turn bullish on Asia. Strategists led by Robert Buckland see only 3% upside in the MSCI Asia Ex-Japan Index for next year, to 670. That’s because earnings will expand just 3% in 2020, significantly below the analyst consensus of 14%, according Citi estimates in a note published Nov. 29.

“We are not especially bearish, but can see better opportunities elsewhere,” they wrote. “While markets may overshoot into the new year, we would prefer to wait for the next dip before turning more bullish.”

Citi has had some accurate calls in the past. Last December, it recommended investors buy the dip in global equities -- the MSCI All-Country World Index has rallied 20% this year.

The strategists’ view is more skeptical than that of other firms such as JPMorgan (NYSE:JPM) and UBS, which see the Asia ex-Japan gauge rising about 8% to 700 by the end of 2020. And while Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are both bullish on South Korea on expectations for a cyclical recovery, Citi rates the country an underweight.

The trade slowdown has damaged earnings momentum there, according to the note. Despite hopes that Korean companies are becoming more shareholder-friendly, their dividend payout remains “lackluster,” the Citi strategists said, adding that high capital expenditure will continue to be a drag on free cash flow.

Stock-Market Summary

• MSCI Asia Pacific Index up 0.6%
• Japan’s Topix index up 1%; Nikkei 225 up 1.1%
• Hong Kong’s Hang Seng Index up 0.5%; Hang Seng China Enterprises up 0.7%; Shanghai Composite up 0.3%; CSI 300 up 0.5%
• Taiwan’s Taiex index little changed
• South Korea’s Kospi index up 0.4%; Kospi 200 up 0.5%
• Australia’s S&P/ASX 200 up 0.6%; New Zealand’s S&P/NZX 50 down 0.1%
• India’s S&P BSE Sensex Index up 0.5%; NSE Nifty 50 up 0.4%
• Singapore’s Straits Times Index up 0.2%; Malaysia’s KLCI up 0.4%; Philippine Stock Exchange Index up 0.9%; Jakarta Composite up 1.2%; Thailand’s SET down 1%; Vietnam’s VN Index down 0.2%
• S&P 500 e-mini futures up 0.3% after index closed down 0.4% in last session

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