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01 Mar 2021 | 11:31

Overweight UK if you're worried that real yields might rise further, Citi says

(Sharecast News) - Real yields could be set to continue rising, which is "bad" for equity markets, strategists at Citi said. Those tilted towards highly-rated Growth stocks were especially exposed to such a development.

Their recommendation to clients who fearful of higher real yields was therefore was to underweight the US and overweight the UK, favouring so-called Value stocks over Growth and Energy/Financials over Technology.

Some of the most favoured Environmental, Social and Governance plays might also be vulnerable, they said.

Between early-2019 and the end of 2020, real yields had dropped from 1.2% to -1.1% and were now back to -0.6%.

A further rise to 0% could see the MSCI AC World Index derate from a 12-month forward price-to-earnings multiple of 20 to 17.

However, it was unlikely that the Fed would allow real yields to rise "much above" 0% "given high levels of public and private sector leverage," they argued.

"A stock market sell-off might also provoke more aggressive central bank asset purchases."
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