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SINGAPORE: The global economy is not headed for a period of stagflation, according to US financial giant Citibank. The comment came in its latest investment outlook for the second half of this year.
Citibank said it favours equities over bonds due to high debt valuations, and it also sees potential in emerging markets.
With rising prices and slowing economic growth, some economists have been talking about stagflation.
But Citibank is taking a more positive stand, arguing that slower economic growth may in fact help to combat inflation and therefore reduce the risk of stagflation.
It also sees modest wage growth in both developed and emerging economies.
For investors looking at hedging their portfolio against inflation, Citibank said REITs is one asset class to include.
Salman Haider, Head of Wealth Management, Citibank Singapore, said: "On the REIT side, it's one of the inflation-combating strategy that we are advising clients on... (for) their portfolio.
"The region we like is continental Europe, excluding UK, and the other region we like is Japan. We think the property prices in these regions would rise with increasing inflation, so that seems to be a good strategy to adopt.
"We are selective when it comes to Singapore, we are selective in terms of where you get exposure, (it) would depend on the specific REIT and what position they have within this market. But globally, we would avoid the US at this stage."
Citibank said combating inflation is one of the key trends for the second half of this year.
Another sector that it said investors should keep an eye on is global infrastructure. It expects spending in that sector to hit US$2 trillion globally over the next ten years.
In terms of markets, Citibank said emerging markets in Asia and Latin America will be less vulnerable to earnings disappointment. And while it is important to keep a balanced portfolio, it favours equities to bonds for now.
The bank added that it expects Asian currencies to continue on an uptrend for the second half of 2008, albeit at a slower pace.
- CNA/so
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