Fears of an Australian and indeed a global recession have been overcooked, according to Citigroup, which has taken a very rosy stance to the latest market downturn.
As highlighted by the Fairfax press, Citigroup thinks the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) will make a long-awaited return to the 6,200 point mark in 2016 – a level not seen since January 2008.
The bullish forecast comes at a time where investors around the globe are fearing a tough landing from the US Federal Reserve's first interest rate hike in nearly a decade, as well as a sharp slowdown in China's economy.
These concerns have resulted in severe volatility through global equity markets with our own only narrowly avoiding an official bear market, defined as a drop of 20% or more from the peak.
However, as quoted by The Sydney Morning Herald Citi said: "It's worth pointing out that corrections are an inevitable annual event even in bull markets."
Citi also noted that the market had shifted into a new stage of the cycle as the 'maturing bull'.
Although the local sharemarket suffered its worst quarter since 2011 in the three months to September, we have had a very positive start to the fourth quarter of 2015. The ASX 200 is up 0.8% today, and 3.4% since the beginning of the month. Citi expects this trend to continue, with the 6,200 point mark representing a 19.5% increase to today's level.
Which companies will win from the rally?
Interestingly, Citi is also forecasting an interest rate cut in November. The Reserve Bank of Australia will meet today but is expected to leave rates on hold, but there is a growing chorus of analysts forecasting further easing in monetary policy in the months ahead.
In my opinion, lower interest rates could drive a refreshed interest in high-yield dividend stocks. While that could see something of a rebound for companies like Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA), I believe it will be companies offering stronger growth prospects that really blossom. That could include companies such as Retail Food Group Limited (ASX: RFG) and Coca-Cola Amatil Ltd (ASX: CCL) – both of which are trading at reasonable prices today.
