Citigroup Says Global Stocks Selloff on Japan Quake Is Buying Opportunity

The effects of an earthquake in Japan on global equities may be limited and the MSCI All-Country World Index is “mildly oversold,” increasing opportunities to buy in the event of further declines, Citigroup Inc. said.

“The latest setback has driven the index back 4 percent below our target line so making future returns look more attractive again,” according to a report dated yesterday by analysts led by Robert Buckland.

The index of shares in developed and emerging markets retreated for a fourth day, losing 0.2 percent to 323.39 as of 12:32 p.m. Singapore time. The gauge has lost 4 percent since the March 11 earthquake and tsunami that killed more than 4,000 people and crippled a nuclear power facility. Citigroup has an end-2011 target of 360 for the index.

“Perhaps ongoing fears about events in the Middle East and Japan will provide the impetus for global equities to get even more oversold,” Buckland, Citigroup’s London-based chief global equity strategist, said in the report. “Unless these events have a meaningful impact upon the global economy, which we do not think they will, then a further sell-off would offer an opportunity for us to get more bullish.”

Investors are trying to assess whether the quake will hurt Japan’s economy enough to derail worldwide growth spurred by more than $12 trillion pumped into the financial system by governments and central banks since 2008. Global gross domestic product is forecast to expand 4.4 percent this year and 4.5 percent in 2012, according to the Washington-based International Monetary Fund.

Japan’s Growth

Japan accounted for $5.4 trillion, or 8.7 percent, of world GDP in 2010, when the global economy expanded by 5 percent, the fastest pace since 2007, the IMF said. Japan may expand 1.5 percent this year, the fifth-worst rate among the world’s 24 developed nations, according to the IMF’s World Economic Outlook from October.

Japan’s earthquake may cause damage of as much as 10 trillion yen ($126 billion), or 2 percent of gross domestic product, close to the damage caused by the Kobe earthquake in 1995, Citigroup said in the report. The immediate reaction of the Japanese equity market is “overdone,” the brokerage said, adding that it will stay “overweight” on Japanese stocks amid low valuations and the prospect for recovery.

Japan’s Prime Minister Naoto Kan said March 13 Japan is facing its worst crisis since World War II after the quake. The official death toll at 8 a.m. Tokyo time was 4,314 people, with 8,606 missing, the National Police Agency said. The tsunami and fears of a meltdown at Tokyo Electric Power Co.’s Fukushima Dai- Ichi nuclear plant forced 451,059 people from their homes.

Exchange’s Appeal

Tokyo Stock Exchange President Atsushi Saito appealed for calm on March 15 as the Nikkei 225 (NKY) Stock Average plunged 16 percent in the first two trading days after the earthquake, the most for the period since 1987. The measure rebounded 5.7 percent yesterday.

The Nikkei dropped 0.7 percent in recent trading, leaving the gauge 13 percent lower since the close on March 10, the day before the earthquake struck.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net; Darren Boey at dboey@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.