MARKETS SPECTATOR: Citigroup vs Nomura

Citi's Paul Chanin ranks Australia as the number one investing destination whereas Nomura sees the sale of Aussie stocks as the right move.

Since May 3 Citigroup’s Asia Pacific head of quantitative research, Paul Chanin, has been urging investors to buy Australian stocks. But the S&P/ASX200 Index has dropped 7.7 per cent during this time.

Chanin is not perturbed. He ranks Australia number one among global markets based on valuation, earnings, momentum and real effective exchange rates.

Investors, Chanin told Markets Spectator, are “overly bearish” on cyclical or commodity driven stock markets. Such markets, including Australia, look attractive because of a “gap between perception and risk,” he says.

Nomura’s latest research suggests investors may be right in selling commodity producing countries such as Australia.

“Growth in China will trend down as policy tightens to contain risks,” says Nomura economist Rob Subbaraman. “China faces rising risks of financial crisis.”

Subbaraman says leverage in China has increased by 34 per cent in the past five years and that this could lead to a systemic financial crisis. Nomura forecasts China’s gross domestic product growth to slow to 7.2 per cent by the fourth quarter of this year.

If Nomura’s forecasts are right, that is bad news for Australia. China is Australia’s biggest trading partner. Iron ore is Australia’s biggest export to the world’s second-biggest economy.

Yesterday, the spot price for iron ore imported through the north-east Chinese port city of Tianjin was unchanged at $US110.90 a tonne, according to Bloomberg data. The Tianjin iron ore spot price has fallen 30 per cent since its high this year on February 20 of $US158.90 a tonne, according to Bloomberg.