Citigroup urges investors to 'be brave' as it forecasts a 20pc gain in global equities by end-2016

Fortune favours the 'brave', or so Citigroup strategists seem to believe. The investment bank has forecast a 20pc gain in global equities in next 15 months.

Last week, global equities were left brutally wounded, after their most painful quarterly performance in four years wiped more than $10 trillion off shares worldwide.

However, almost a week later, strategists at Citigroup have stuck a plaster on the gaping wound of Chinese-led malaise, which has battered shares in recent months.

In a note entitled "Time to be brave (again)", strategists offered a rather upbeat diagnosis on the health of global stocks, blaming fears of a China-led global recession for the last correction.

"We think the latest global equity sell-off represents a correction in an ageing bull market, rather the beginning of the next major bear market.

"The global bull market is ageing, but not finished," the bank said.

Stock markets are said to be in a bull phase when a rally exceeds 20pc, whereas they fall into a bear market when financial markets decline by more than 20pc.

The MSCI AC World - a benchmark for global stocks - slumped by 10pc in the last quarter and is now off by 9pc so far this year.

Robert Buckland, of Citigroup, said: "This correction might feel painful, (they always do), but it is not that much bigger than the 12pc median annual sell-off in global equities since 1970.

"Before we all get too depressed, it is worth pointing out that corrections are an inevitable annual event even in bull markets."

Strategists urged investors to buy into this "latest correction", although they acknowledge the greatest risk to their bullish views is a global recession.

The bank is concerned the ongoing slowdown in China could result in global real GDP growth slowing to 2pc - a level it believes is consistent with global recession.

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Nonetheless, Citigroup says it would buy European shares, excluding the UK, as well as Japanese stocks during this sell-off as they both have reasonable earnings per share momentum and should receive further support from their respective central banks.

On Europe, Jonathan Stubbs, of Citigroup, reckons further European Central Bank quantitative easing will lend support to the eurozone economy and asset prices.

Despite a "decent UK economic performance", with 70pc of UK-listed company revenues coming from overseas and lower commodity prices, the bank is "underweight" these stocks.

It also believes the risk of a "Brexit" should be considered by investors.

However, in a separate note, the investment bank lowered its FTSE 100 targets to take into account recent GDP and rising risk from China.

Strategists believe the FTSE 100 will end the year on a high of 6,900 - making a return of about 10pc by the end of the year.

Mr Stubbs said: “We would expect a fourth-quarter rally to be supported by a combination of modest growth and re-rating following the recent correction.”

After an extremely volatile week, Britain’s benchmark index jumped 2.76pc in the previous trading session to hit levels last seen before ‘Black Monday’.

Commenting on the report, Joshua Mahony, of IG, said the blue chip index has shifted out of the “red zone” where it felt like “another sharp leg lower was around the corner” after a bullish response to US jobs data on Friday.

However, Mr Mahony warned: “We are certainly not out of the woods and considering we are currently in the middle of the strongest five-day run since December 2014, it is highly likely that the sellers will come back into focus soon enough.”

“Only once we see how strong the next selloff is, will we be able to say with much confidence that the worst is over.”