Citigroup cautious on emerging stocks

Says developed markets like U.S., Europe and Japan will outperform emerging ones in 2007, warns of correction for India and China.

Singapore — Citigroup’s global equity strategist said Tuesday that developed markets such as the United States, Europe and Japan would outperform emerging markets this year, and warned that rallies in India and China could falter.

Citibank’s Ajay Kapur said he expects equity markets in the United States, Japan and Europe to rally 10 to 15 percent in 2007, thanks to healthy corporate earnings and strong economic growth coupled with low inflation.

By contrast, emerging markets – which outperformed last year – now appear overvalued, with both India and China at risk of a correction.

“When there are elevated levels of sentiment, any policy error, any mistake obviously hurts [markets] that are most inflated,” Kapur told a news conference organized by Citibank’s private bank.

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