Central bankers not the only things driving bull market: Citigroup

What's the yield curve saying about the next 12 months?

The global bull market in equities isn’t just being driven by loads of central bank liquidity, says Robert Buckland, macro strategist at Citigroup Global Markets.

It’s also being fuelled by key fundamentals for example gross domestic product, earnings per share and dividends per share, that have all either regained or surpassed previous peaks.

“We are reassured to locate that the rebound in share prices reflects a rebound in GDP, EPS and DPS,” he said in a note to clients. “Therefore, we believe this bull market is maturing but not over.”

Based on Buckland’s research, global real GDP is 10% greater than it was seven years ago, which coincides with the 10% increase in global equity prices because the previous peak in 2007.

However, the relationship between real economic performance and equity markets is very different from a regional perspective. Emerging market GDP, for example, is up 35% from the previous peak, but the MSCI EM index is still 3% below.

“If economic growth was everything mattered, we should expect EM equity markets to be hitting new highs, which isn\’t the case,” he explained.

U.K. and Japanese share prices also have lagged GDP growth, Buckland added, while the U.S. and German equity markets are the only ones that have outperformed.

Global equity prices, meanwhile, have “pushed slightly ahead” of global earnings per share, but they “still lag” global dividend per shares, which are now 20% greater than the 2007 peak.

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