>GLOBAL EQUITY QUARTERLY (CITI)

Edging Towards Recovery

■ Rebound — After a record seven consecutive losing quarters, global equities bounced by 21% in 2Q09. While some consolidation would be welcome, we think that markets can move higher again in 2H09.

■ Earnings — Global trailing earnings are now down 41% from the end-2007 peak. Our long-held expectation of a 50% peak/trough fall suggests that we are approaching the final stretch of this earnings downturn.

■ Valuations — Even given the market rebound, we think that global equities look cheap. P/BV and PEs on trend earnings are still down at 1980s levels.

■ Welcome To The Twilight Zone — This is the period towards the end of most global recessions when equity valuations are cheap and investors start to anticipate recovery. Share prices rise even though EPS are still falling.

■ Cheap Recovery Plays — We look towards those regions and sectors where the potential for EPS recovery looks greatest but valuations remain attractive.

■ Regional Strategy — We prefer the higher-beta European markets to the safer but more expensive US. We generally favour Emerging over Developed Markets.

■ Global Sector Strategy — We have a balanced sector strategy, which seems appropriate for highly rotational markets. Our favourite cyclical is now Financials. Our favourite defensive is Telecoms.

To see full report: GLOBAL EQUITY QUATERLY