Global economy not headed for stagflation: Citi

Global economy not headed for stagflation: Citi

By Rachel Kelly

 

The global economy is not headed for a period of stagflation, according to US financial giant Citibank.

 

In its investment outlook for the second half of this year the lender argued that slower economic growth may in fact help to combat inflation, and therefore reduce the risk of stagflation.

 

Some economists have been raising the possibility of stagflation, given rising prices and slowing economic growth.

 

Citibank also sees modest wage growth in both developed and emerging economies.

For investors looking at hedging their portfolio against inflation, Citibank’s Head of Wealth Management, Singapore, Salman Haider, says property trust is one asset class to include.

 

“On the REIT side it’s one of the inflation-combating strategy that we are advising clients on inside their portfolio. The region we like is continental Europe excluding UK, the other region we like is Japan. We think the property prices in these regions would - the more or less the yields would rise with increasing inflation - so that seems to be a good strategy to adopt.”

 

Another sector Citibank thinks investors should keep an eye on is global infrastructure.

 

It expects spending in that sector to hit 2 trillion US dollars globally over the next ten years.

 

In terms of markets, Citibank says emerging markets in Asia and Latin America will be less vulnerable to earnings disappointment.

 

And while it’s important to keep a balanced portfolio, Mr Haider says he favours equities to bonds - for now.

 

“From a asset allocation perspective we are still overweight on equities. That’s based on one, valuations and we believe that further downside remains to be limited, and we wouldn’t abandon the equity asset class at the moment - not at the current levels. Within the region yes we are overweight emerging market equities and we expect emerging markets to grow at around 6.2% - 6.3% heading into 2009.”

 

Citibank adds that it expects Asian currencies to continue to strengthened in the second half of this year, though at a slower pace.

  

Source: 938Live