Growth stocks, including the battered tech sector, will likely remain under pressure as central banks tighten monetary policy, driving yields higher, according to Citigroup Inc. strategists.

“Now that central banks are unwinding monetary support, growth stocks’ valuations have further to fall,” strategists including Robert Buckland wrote in a note. They are especially wary of growth stocks in the US, where the tech-heavy Nasdaq 100 has slumped to November 2020 lows and is down 27 per cent this year.

Stocks that are valued on future earnings growth, and especially tech, have been leading the selloff in global equities over the past weeks. As the Federal Reserve embarks on interest rate hikes to tame surging inflation, expensive growth shares have suffered as higher rates mean a bigger discount for the present value of future profits. This marks a shift in investor outlook after tech stocks had been some of the market’s best performers for years. 

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Citi strategists prefer cheaper, so-called value stocks, according to a portfolio they’ve modeled to protect against rising real yields. They also favor UK and emerging market stocks over the US and continental Europe.

“Any stabilization in nominal yields should eventually help to stabilize real yields and hence equity valuations,” they said.

The Nasdaq 100 index is now trading at about 20 times forward earnings, the lowest since April 2020 and at about the average level seen over the past decade, according to data compiled by Bloomberg. This compares with about 29 times seen at a record high in November.