Citigroup’s extensive overseas business has given the company a sizeable exposure in the global economy. If the global economy grows, then those exposures can maximize the growth and returns of Citigroup Inc. (NYSE:C). But the more important part is if the global economy falters, Citigroup’s hedged positions in the capital ratios and security placement will offset the currency risks.
According to Bloomberg analysts, Citigroup will continue to generate more earnings because of the positive outlook in the US economy and emerging markets. Even if foreign currencies move against the company, the regulatory capital this year will remain fairly stable. This, dear investors, makes Citigroup a very attractive stock from a macro and fundamental perspective.
Market Performance
The chart above shows the year-to-date performance of Citigroup parallel to the NYSE composite. We all know the effect of the financial meltdown in 2008 that stripped the value of Citigroup Inc. (NYSE:C) from a high of $206.50 to an extremely low $10.20; however, it appears that the housing industry has hit a bottom in 2012, and is on its way to a recovery.
The housing industry has outperformed the market by 17.16% this year, and this will most likely continue as analysts estimate increased earnings for the entire year. The most important sign of this recovery is that the US pending home sales index is showing a rapid increase as more customers are planning to buy previously owned homes due to their more affordable price.
At the same time, a report by Freddie Mac (FMCC) suggests that prices are rising but the level of activity, specifically in the most affected areas, is still low. Therefore, I predict that there is still enough room for a moderate and sustainable growth in the market due to increased economic stimulation and stronger demand. The surge of the market marks the start of a bullish momentum for companies that thrive on these kinds of securities.
The decision of the company to expand their business overseas is a great measure of control against the future volatility of the market. The company’s business and financial risks would have been magnified had it concentrated their business in the US economy. Based on my observations and predictions on market performance, I have a favorable and bullish outlook for the performance of Citigroup’s stock for the next couple of years.
Conclusion
According to my analysis above, Citigroup Inc. (NYSE:C) has already managed the risks involved in their exposures in emerging markets. Specifically, the management of one of the largest banks in the world already hedged the company’s capital ratios to minimize the risk impact of the foreign-exchange rates. Hence, the biggest concern of the direction of emerging markets in relation to the business exposures of the bank has already been dealt with properly. Moreover, the recovering book value and capital ratios make Citigroup a fundamentally viable vehicle of investment. I rate this stock as a Buy.
quratulain kamila has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co..
The article Citigroup’s Overseas Business originally appeared on Fool.com.
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