Momentum investing has historically done well when volatility is low or when economic growth targets are being revised upwards.

And yet, there is little sign that a more value-driven style of investing is starting to emerge even if volatility is up and economic growth revisions are down, the latest Asia ex-Japan equities strategy report from Citigroup shows.

ôMomentum is still king of the castle,ö says Markus Rosgen, chief Asia strategist at Citigroup. ôOver the last few years, buying what has gone up the most has seemingly been a much better strategy than one that involves even an iota of analysis.ö

He notes that the lower Federal Reserve funds rate and strong retail flows are among the reasons momentum investing has been sustained.

Rosgen expects gains from momentum investing to taper off in the coming weeks to months, however.

ôWe expect near-term we go higher, retail investors will get even more involved
and holding periods for equities will get shorter still. Valuations should rise to
similar peaks or may even surpass the old peaks, though I doubt by much,ö he says.

Valuations measures such price/earnings, price/book value, and adjusted earnings yield gap show that equities and that the risk reward if increasingly skewed towards safer assets, Rosgen says.

CitigroupÆs momentum and valuation models lead to a bullish sentiment on all Asian markets and sectors with the exception of technology, which it rates a sell. The confidence intervals are highest for Taiwan and Malaysia, and telecoms and utilities among the sectors.

The bankÆs moving average convergence/divergence models are more picky with the region. China, Hong Kong, India and Indonesia are buys, the rest are sells. In terms of sectors, healthcare, banks and technology are sells.

Overall, Citigroup sees the best risk rewards in stock markets in Hong Kong, Korea, Malaysia and Taiwan. Among the sectors, it is most overweight in financials, utilities, telecoms and consumers. Its bias is large-cap stocks over small- and mid-caps.