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Citi Wealth Outlook 2024: GDP +2.2%, GDP to Slow in Early 2024 & Strengthen in 2025, Portfolio Return Equities +8.7%, Fixed Income +5.8%, Cash +4.3%, Hedge Funds +11.5%, Private Equity +19.5%, Real Estate +10.9%, Commodities +2.7%
22nd December 2023 | Hong Kong
Citi has released the Citi Wealth Outlook 2024, providing key insights into global economy & investment trends in 2024, asset allocation and expected portfolio returns. For 2024, Citi forecasts global economy to grow with Global GDP +2.2%, United States +1.6%, China +4%, EU +0.4%, UK +0.6%, with economy slowing down in early 2024 and strengthening in 2025. Portfolio Strategic Return Estimates 2024 – Equities +8.7%, Fixed Income +5.8%, Cash +4.3%, Hedge Funds +11.5%, Private Equity +19.5%, Real Estate +10.9%, Commodities +2.7%. Global Equities – Developed Market Equities +8.2%, Emerging Market Equities +12.8%. Global Fixed Income – Investment Grade Fixed Income +5.4%, High Yield Fixed Income +7.9%, Emerging Market Fixed Income +8.1%. 1 Year Bonds Return – Treasury Bills +5%, 1 to 5 Year Treasury +7%, 5 to 10 Year Treasury +10%, More than 10 Year Treasury +13%. Selected Investment Strategies – 1) Alternative Investing (highest next-decade return estimates), 2) Fixed Income – intermediate-term US dollar bonds (eg. US Treasuries, investment grade credit and municipal bonds, may consider higher credit quality bonds), 3) Unregulated Financial Companies (Invest as alternative lender through private credit funds, Invest via listed alternatives firms or private general partner). Citi Top 10 High Conviction Opportunities – Semiconductor equipment makers, Cybersecurity shares, Western energy producers including equipment & distributors, Copper miner equities & clean energy infrastructure, Medical technology & tools companies, Defense contractors, Private capital asset management firms, Japanese yen & yen-denominated Japan tech & financial shares, Private credit & structured debt securities, Normalization of the US yield curve. Citi Top 5 Unstoppable Trends – Generative AI might reshape every sector, AI-Propelled Digitization in 2024, OPEC role in the energy transition, Healthcare innovation, Implications of G2 polarization on global technology (United States & China). Economy – Inflation is coming down. Wage growth is moderating, even in services. Employment growth is slowing. Growth is likely to slow in early 2024, but we see no synchronized collapse across the global economy, as many fear. Expect global economic growth to strengthen in 2025. Geopolitics & Elections – History shows that 90% of geopolitical events have not changed the direction of the world economy. The share of geopolitically-vulnerable energy supplies the world relies on has increased. In 2024, countries with general election represents 68% of total global equity market capitalization. Equity – For many sectors and markets, equity valuations are more reasonable than investors believe. Corporate profits are rebounding and are likely to hit an all-time high in 2025. Equity valuations are more attractive now. Except for large cap technology, many sectors trade at moderate valuations. Increased our exposure to small- and mid-sized growth equities. Interest Rates – High short-term interest rates today are unlikely to be available tomorrow. The same is true for longer-term rates. Investors should not assume that they will be able to maintain rates as they roll over short-term Treasuries and bonds. As rate pressures recede, the US dollar is likely to decline. This could help set the stage for stronger global growth in 2025. Portfolio & Returns – The “balanced” portfolio is poised for stronger performance over the next decade than it has experienced in some time. 2 pillars of investment returns (income and growth) have been reinvigorated. Very good time to build new balanced portfolios or to add to existing ones. Alternative Investing – Alternatives have the highest next-decade return estimates among all of the asset classes in our proprietary asset allocation methodology. The Global Investment Committee (GIC) suggested allocation for a qualified and suitable moderate-risk investor to alternatives is 12% to hedge funds, 10% to private equity and 5% to real estate. The Citi Wealth Outlook 2024 is titled “Slow then grow – Investing in the market’s big reset.” See below for key findings & summary | View report here
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“ GDP +2.2%, GDP to Slow in Early 2024 & Strengthen in 2025, Portfolio Return Equities +8.7%, Fixed Income +5.8%, Cash +4.3%, Hedge Funds +11.5%, Private Equity +19.5%, Real Estate +10.9%, Commodities +2.7% “
David Bailin, Chief Investment Officer, Citi Global Wealth: “Markets lead economies. The ‘big reset’ reflects our view that higher strategic returns will be available over the decade and for many investors, may prove to be a time when fully invested, diversified core portfolios can capture market results across equities and bonds.”
Steven Wieting, Chief Investment Strategist & Chief Economist at Citi Global Wealth: “We believe in balanced, “core” portfolios. We have also outlined some opportunistic strategies that include undervalued assets and areas where a catalyst for growth or change in market conditions exist. These include investments related to our long-term unstoppable trends, including longevity and the impact of artificial intelligence.”
Citi Wealth Outlook 2024
Citi has released the Citi Wealth Outlook 2024, providing key insights into global economy & investment trends in 2024, asset allocation and expected portfolio returns.
Summary
- 2024 GDP Forecast – Global +2.2%, United States +1.6%, China +4%, EU +0.4%, UK +0.6%
- Portfolio Strategic Return Estimates 2024 – Equities +8.7%, Fixed Income +5.8%, Cash +4.3%, Hedge Funds +11.5%, Private Equity +19.5%, Real Estate +10.9%, Commodities +2.7%
- Global Equities – Developed Market Equities +8.2%, Emerging Market Equities +12.8%
- Global Fixed Income – Investment Grade Fixed Income +5.4%, High Yield Fixed Income +7.9%, Emerging Market Fixed Income +8.1%
- 1 Year Bonds Return – Treasury Bills +5%, 1 to 5 Year Treasury +7%, 5 to 10 Year Treasury +10%, More than 10 Year Treasury +13%
- Selected Investment Strategies – 1) Alternative Investing (highest next-decade return estimates), 2) Fixed Income – intermediate-term US dollar bonds (eg. US Treasuries, investment grade credit and municipal bonds, may consider higher credit quality bonds), 3) Unregulated Financial Companies (Invest as alternative lender through private credit funds, Invest via listed alternatives firms or private general partner)
- Citi Top 10 High Conviction Opportunities – Semiconductor equipment makers, Cybersecurity shares, Western energy producers including equipment & distributors, Copper miner equities & clean energy infrastructure, Medical technology & tools companies, Defense contractors, Private capital asset management firms, Japanese yen & yen-denominated Japan tech & financial shares, Private credit & structured debt securities, Normalization of the US yield curve
- Citi Top 5 Unstoppable Trends – Generative AI might reshape every sector, AI-Propelled Digitization in 2024, OPEC role in the energy transition, Healthcare innovation, Implications of G2 polarization on global technology (United States & China)
- Regional Outlook in Asia – Asian economic growth should improve in 2024 as we expect headwinds from high inflation, US policy tightening and China’s slowdown to abate. Opportunities in Japanese equities and currency, India’s longer- term development, as well as some sectors in China as its policies take hold to dig its economy out of a deep slump.
- Regional Outlook in Europe – Europe’s more conservative monetary policy, in combination with the withdrawal of energy support measures, suggests a prolonged and muted “slow then grow” cycle relative to the US. European equities unattractive on a relative basis for most global investors. Fixed income will, however, provide local investors some rich potential opportunities for yield.
- Regional Outlook in North America – 2024 promises to be an eventful year in terms of politics, monetary policy and markets. We see the end of a series of “rolling recessions.” In particular, we believe that manufacturing will rebound after a 2022-2023 contraction while other sectors soften. Through it all, look for US gross domestic product (GDP) growth to slow modestly from about 2.4% in 2023 to 1.6% in 2024, before accelerating to 2.6% in 2025.
- Regional Outlook in Latin America – Transitioning US and global economy will make for some interesting, volatile and divergent opportunities across Latin America. Global investors will need to pick their spots, mindful of likely currency effects, long- term trends and shorter-term risks. One combination to consider is a US dollar (USD)- denominated and active hedging strategies of local rate positions as well as perhaps some selective tactical exposure to the low equity valuations of some of the country indices.
Citi Investment Insights
- Economy – Inflation is coming down. Wage growth is moderating, even in services. Employment growth is slowing. Growth is likely to slow in early 2024, but we see no synchronized collapse across the global economy, as many fear. Expect global economic growth to strengthen in 2025.
- Geopolitics & Elections – History shows that 90% of geopolitical events have not changed the direction of the world economy. The share of geopolitically-vulnerable energy supplies the world relies on has increased. In 2024, countries with general election represents 68% of total global equity market capitalization.
- Equity – For many sectors and markets, equity valuations are more reasonable than investors believe. Corporate profits are rebounding and are likely to hit an all-time high in 2025. Equity valuations are more attractive now. Except for large cap technology, many sectors trade at moderate valuations. Increased our exposure to small- and mid-sized growth equities.
- Interest Rates – High short-term interest rates today are unlikely to be available tomorrow. The same is true for longer-term rates. Investors should not assume that they will be able to maintain rates as they roll over short-term Treasuries and bonds. As rate pressures recede, the US dollar is likely to decline. This could help set the stage for stronger global growth in 2025.
- Portfolio & Returns – The “balanced” portfolio is poised for stronger performance over the next decade than it has experienced in some time. 2 pillars of investment returns (income and growth) have been reinvigorated. Very good time to build new balanced portfolios or to add to existing ones.
- Alternative Investing – Alternatives have the highest next-decade return estimates among all of the asset classes in our proprietary asset allocation methodology. The Global Investment Committee (GIC) suggested allocation for a qualified and suitable moderate-risk investor to alternatives is 12% to hedge funds, 10% to private equity and 5% to real estate.
- Diversifying (Alternatives Strategies) – Seek to provide downside protection and potentially profit form volatile markets
- Directional (Alternatives Strategies) – Seek to generate alpha above traditional credit and equity exposures
- Fixed Income – Present yields for all bonds are historically high and build in significant “real yield” premium over expected inflation. If unemployment rises in 2024, the Fed is likely to cut rates. This prospect of appreciation adds to the appeal of adding intermediate-term US dollar (USD)-denominated bonds to portfolios. Suitable investors may consider fixed income exposure in higher credit quality bonds averaging an intermediate maturity.
- Unregulated Financial Companies – Invest as alternative lender through private credit funds to potentially generate yield premiums over traditional securities. Invest in the managers via listed alternatives firms or private general partner (GP) stakes funds.
- Generative AI most benefited –Tech & Comms, Financials & FinTech, Consumers, Healthcare, Industrial tech & mobility
- Generative AI least benefited – Natural resources & Climate tech, Real estate
- AI & Digitization in 2024 – Mega-cap AI leaders, AI infrastructure, AI-equipped robotics & automation, AI-augmented drug discovery, Cybersecurity
- OPEC Role in Energy transition – World’s most powerful oil cartel has been become an accelerator of the green revolution. OPEC has decided to maximize short-term profits even if it means speeding its own decline.
- Winners of Energy transition – One set of winners has been Western producers and pipeline suppliers who get the benefit of the higher price without the production cuts. Another set includes copper miners and spot copper, the one indispensable element in the global thrust toward electrification.
- Healthcare Innovation – Exciting technological advancements are being developed and deployed across every sub-sector of Healthcare, promising transformative breakthroughs in medicines, procedures, hospital care, nutrition and preventative actions in people’s daily lives.
- United States & China (G2) polarization on global technology – Technology has become an industrial and political battleground. US and its allies have seen a reverse flood of onshoring jobs and China has cut into the West’s lead in advanced chipmaking. Favor the agile enablers of these shifts, notably semiconductor equipment makers.
1) Citi Wealth Outlook 2024
Citi Global Wealth 2024 GDP Forecast:
- Global: +2.2%
- United States: +1.6%
- China: +4%
- European Union: +0.4%
- United Kingdom: +0.6%
In 2024 – Countries with general election represents 68% of total global equity market capitalization
MSCI Index Performance During 1st Year of Crisis (Regional vs Global):
- Asian Crisis 1997: Asia -28.3% / Global +15%
- LATAM Crisis 1998: LATAM -35.1% / +22%
- EU Crisis 2011-2013: Europe -10.5% / -6.9%
- Collapse 2015: LATAM – 30.8% / Global -1.8%
Citi Observations:
- Inflation is coming down. Wage growth is moderating, even in services. Employment growth is slowing.
- United States economy is more resilient than many expected.
- United States industries suffered a “rolling recession” in 2023. Sector contractions will roll out in 2024. Will initially see a slowdown in growth, there will be no broad-based economic collapse.
- For many sectors and markets, equity valuations are more reasonable than investors believe.
- Corporate profits are rebounding and are likely to hit an all-time high in 2025.
- High short-term interest rates today are unlikely to be available tomorrow. The same is true for longer-term rates. Investors should not assume that they will be able to maintain rates as they roll over short-term Treasuries and bonds.
- As rate pressures recede, the US dollar is likely to decline. This could help set the stage for stronger global growth in 2025.
- Market timing is a bad strategy.
Citi Recommendation: Balanced Portfolio
- The “balanced” portfolio is poised for stronger performance over the next decade than it has experienced in some time.
- Diversified portfolios may also protect portfolios from security concerns and unpredictable election results, two impending risks.
- Bond yields have tripled from their lows. Investment grade corporate debt yields, even those with low durations, sat at 6% as of November 16, 2023. If inflation were to end 2024 at our expected level of 2.5%, real corporate bond yields would be approximately 3.5%. Such high real yields are rare, last seen on a sustained basis in the late 1990s. And the risk of entering new bond positions only to see them eclipsed by even higher-yielding ones is much less at today’s yields than it was just 18 months ago.
- The evolving macro environment also suggests that equity price appreciation will broaden in the US, then globally.
- The largest US tech-related shares (the “Magnificent 7”) have driven the majority of returns in global equities in 2023.
- For 2024, we expect that profitable small- and mid-cap growth shares with solid balance sheets will see renewed interest. And there are other potential well-valued equity opportunities globally.
Key Considerations:
- Growth is likely to slow in early 2024, but we see no synchronized collapse across the global economy, as many fear.
- The latter half of 2024 should show a return to sustainable economic momentum as well as an improvement in corporate earnings.
- Expect global economic growth to strengthen in 2025. This should become apparent to investors as earnings estimates for 2025 rise. We expect a 12% increase in earnings per share (EPS) over the next two years.
- 2 pillars of investment returns – income and growth – have been reinvigorated. Therefore, this a very good time to build new balanced portfolios or to add to existing ones.
- Valuations for key elements of core portfolios are more attractive today. Our 10-year Strategic Return Estimates for the constituents of global portfolios have doubled from two years ago
- Yields in the US have risen toward two- decade highs. We think investors should take advantage of them now. Inflation-adjusted “real” Treasury yields of 2.5% are higher than in 80% of all periods over the past 25 years. Broader US fixed income yields are 4% above expected inflation.
- Equity valuations are more attractive now. Except for large cap technology, many sectors trade at moderate valuations. Accordingly, we have already increased our exposure to small- and mid-sized growth equities and are likely to add more equity exposure over the year to come.
- While supply shocks are a possibility, we expect the upcoming period of slower growth to take pressure off labor markets. We expect these trends to alter the course for monetary policy. That said, we do not expect the US Federal Reserve (Fed) to push policy rates back toward zero or resume quantitative easing.
Geopolitics and elections: Assessing risk in 2024
Key Considerations:
- History shows that 90% of geopolitical events have not changed the direction of the world economy. We believe investors should stay invested seek potential opportunities through events that merely cause fear, but don’t deliver catastrophe, while being prepared for the events that do.
- The share of geopolitically-vulnerable energy supplies the world relies on has increased. This points to investments in Western energy supplies – from conventional fossil fuels to alternatives – may mitigate such risks while maintaining energy security. Similarly, we see cybersecurity software as a critical defensive investment .
- General elections loom in the year ahead in nations whose equity markets comprise 68% of global market cap. However, nearly all of this is the US, where the combination of who controls the White House, Senate and House of Representatives is essentially unforecastable at this time. A change in control might have dramatic impact on foreign policy and/or domestic policy.
2) Portfolio & Returns
Key Considerations:
- As prospective returns have risen, so has the cost of sitting on excess cash.
- That makes this a good time to consider building a new or adding to an existing core portfolio.
- It’s also a good time to revisit the basic principles of a core portfolio construction. That includes taking a professional approach, restoring bonds to their traditional role as anchor and diversifying within and across asset classes.
Citi Portfolio Strategic Return Estimates 2024:
- Equities: +8.7%
- Fixed Income: +5.8%
- Cash: +4.3%
- Hedge Funds: +11.5%
- Private Equity: +19.5%
- Real Estate: +10.9%
- Commodities: +2.7%
Global Equities
- Developed Market Equities: +8.2%
- Emerging Market Equities: +12.8%
Global Fixed Income:
- Investment Grade Fixed Income: +5.4%
- High Yield Fixed Income: +7.9%
- Emerging Market Fixed Income: +8.1%
1 Year Bonds Returns (last rate hike before 31/10/23)
- Treasury Bills: +5%
- 1 to 5 Year Treasury: +7%
- 5 to 10 Year Treasury: +10%
- More than 10 Year Treasury: +13%
2 Year Bonds Returns (last rate hike before 31/10/23):
- Treasury Bills: +8%
- 1 to 5 Year Treasury: +14%
- 5 to 10 Year Treasury: +19%
- More than 10 Year Treasury: +24%
North America fixed income yields:
- US Bank Loan – 9.7%
- US High Yield (HY) Preferreds – 8.8%
- US HY Bond – 8.61%
- US IG Preferreds – 7.59%
- US IG CMBS – 6.06%
- US IG Corp – 5.81%
- US Agg – 5.24%
- US Agency MBS – 5.07%
- US TIPS – 4.92%
- US Treasuries – 4.73%
- US Munis – 3.83%
3) Selected Investment Strategies
I) Alternative Investing:
Key Considerations:
- Alternatives have the highest next-decade return estimates among all of the asset classes in our proprietary asset allocation methodology – and have for the past three years.
- The potential for enhanced returns and lower volatility is one of the benefits that a diversified exposure to hedge funds, private equity and real estate may provide for qualified investors.
- When investing in alternatives, it is important to understand the liquidity constraints and added risks involved, and why patience is key.
- Close consultation with a financial professional can help you choose the appropriate alternatives path for you.
- The Global Investment Committee (GIC) suggested allocation for a qualified and suitable moderate-risk investor to alternatives is 12% to hedge funds, 10% to private equity and 5% to real estate and we have provided this roadmap to get you started. Citi Global Wealth has deep capabilities across alternative investments and has multiple analytic tools available to assist you in holistically evaluating portfolio goals and risk tolerance.
Diversifying (Alternatives Strategies):
- Diversifying – Seek to provide downside protection and potentially profit form volatile markets
- Hedge Funds – Relative value, volatility arbitrage, global macro & CTA strategies
- Real Assets – Yield-generating infrastructure and core real estate
Directional (Alternatives Strategies):
- Directional – Seek to generate alpha above traditional credit and equity exposures
- Hedge Funds – Equity long/short, event driven, credit & distressed strategies
- Real Assets – Value-add, opportunistic real estate, co-investments
- Private Credit – Direct lending, mezzanine and special situations & distressed
- Private Equity – Secondaries, buyouts, growth, venture capital, co-investments
II) Fixed Income:
Key Considerations:
- Barring a surprise inflation scare, the US Federal Reserve (Fed) hiking cycle appears to be at its end.
- Present yields for all bonds are historically high and build in significant “real yield” premium over expected inflation.
- If unemployment rises in 2024, the Fed is likely to cut rates. This prospect of appreciation adds to the appeal of adding intermediate-term US dollar (USD)-denominated bonds to portfolios.
- Potential opportunities include intermediate-maturity US Treasuries, investment grade credit and municipal bonds. While US Treasuries do not have credit risk, it is possible for investors in Treasuries to experience losses if interest rates rise above their initial purchase level and the investor subsequently chooses to sell prior to maturity. Investment grade rated corporate and municipal bonds have this interest rate risk, as well as the credit risk of the issuer.
- Suitable investors may consider fixed income exposure in higher credit quality bonds averaging an intermediate maturity. Various maturities have different purposes in diversified portfolios.
III) Investing with and in Unregulated financial companies:
Key Considerations:
- Unregulated providers of capital benefit when regulations hamper traditional low-cost providers (banks), and this is an investable trend.
- One can step in as the alternative lender through private credit funds to potentially generate yield premiums over traditional securities.
- Or for qualified investors, invest in the managers via listed alternatives firms or private general partner (GP) stakes funds.
4) Citi Top 10 High Conviction Opportunities
Top 10 High Conviction Opportunities:
- Semiconductor equipment makers
- Cybersecurity shares
- Western energy producers, equipment & distributors
- Copper miner equities / clean energy infrastructure
- Medical technology & tools companies
- Defense contractors
- Private capital asset management firms
- Japanese yen & yen-denominated Japan tech, financial shares
- Private credit & structured debt securities
- Normalization of the US yield curve
5) Citi Top 5 Unstoppable Trends
Top 5 Unstoppable Trends:
- Generative AI might reshape every sector (Artificial Intelligence)
- AI-Propelled Digitization in 2024
- OPEC’s role energy transition
- Healthcare innovation
- G2 polarization on global technology (United States & China)
I) Generative AI (Artificial Intelligence):
Generative AI: Most Benefited:
- Tech & Comms
- Financials & FinTech
- Consumers
- Healthcare
- Industrial tech & mobility
Generative AI: Least Benefited:
- Natural resources & Climate tech
- Real estate
II) AI & Digitization in 2024:
- Mega-cap AI leaders
- AI infrastructure (chipmakers, semiconductor equipment, data centers)
- AI-equipped robotics & automation
- AI-augmented drug discovery
- Cybersecurity – AI boosts demand due to threats from AI
Key Considerations:
- The most obvious beneficiaries of the generative AI revolution have already seen an expanded growth in their market cap in 2023, but there are potential opportunities as we enter the next stages of the buildout.
- It is, most certainly, not too late for investors to participate in the exponential growth of artificial intelligence (AI) technology. While mega-cap tech leaders will continue to provide reliable exposure to the AI trend, we see areas like semiconductor equipment, robotics, drug discovery and cybersecurity as clear beneficiaries from the coming integration of AI into everyday business and personal lives.
III) OPEC Role in Energy transition:
- The world’s most powerful oil cartel has been become an accelerator of the green revolution.
- OPEC has decided to maximize short-term profits even if it means speeding its own decline. We see two clear sets of winners.
Key Considerations:
- Over the past several years, whenever oil prices have fallen, OPEC has repeatedly intervened by curbing production and restoring price stability, typically around $80 a barrel.
- The strategy has been a gift to the green energy transition, creating a floor under the price
at which alternative energy producers must compete with fossil-fuel-powered sources. - One set of winners has been Western producers and pipeline suppliers who get the benefit of the higher price without the production cuts.
- Another set includes copper miners and spot copper, the one indispensable element in the global thrust toward electrification.
IV) Healthcare Innovation:
- Healthcare services consumes an ever-growing share of our household expenditures and is becoming a financial burden on many governments and societies. Reversing that tide requires better health outcomes at a lower cost of care.
- Within the Healthcare sector, that will necessitate a shift from the traditional approach of managing symptoms to addressing underlying causes, and from treating disease to preventing it.
- Innovation is leading these healthcare paradigm shifts. Exciting technological advancements are being developed and deployed across every sub-sector of Healthcare, promising transformative breakthroughs in medicines, procedures, hospital care, nutrition and preventative actions in people’s daily lives.
- Since the mapping of the human genome at the turn of this century, various biologics-based platforms have emerged to treat a wide array of medical conditions. Biopharmaceutical companies are leveraging these platforms and successfully advancing drugs through the approval process to finally offer hope for age-related mysteries like Alzheimer’s. We also see less toxic, more targeted and more personalized approaches to treating cancer (still the second-largest killer of people over the age of 65).
- Treating obesity is an example of how healthcare can change rapidly. Now, with a new class of weight-loss medications, we see lower rates of diabetes, heart disease and associated co-morbidities among its growing user base.
- Large biopharma companies are reprioritizing their drug development pipelines and slowing the pace of mergers and acquisitions.
- Demand for vaccines and therapeutics has plummeted.
- Resurgence in healthcare procedures post-COVID has been positive for medical device companies but negative for health insurance companies that are having to pay out more in benefits.
- We expect the Federal Reserve to ease its restrictive monetary policies over time. And we are already seeing a stabilization in biotech funding. Relaxing of financial conditions would support increased drug R&D, which, in turn, would help lift beaten- down biopharma and LST companies.
- Demand for life-improving drugs, therapeutics and services will always be more resilient than discretionary consumption segments.
- Pickup in dealmaking should see cheap small- and mid-cap healthcare shares get gobbled up by large biopharma companies, while easing monetary policy from central banks should help boost depressed valuations of other early-stage companies.
- Particularly drawn to discounted valuations in the medical technology and tools segments
- Opportunities in value-based care, a new paradigm that prioritizes proactive measures to prevent illness, departing from the traditional fee-for-service that incentivizes treating patients after they get sick.
V) G2 (United States & China) polarization on global technology :
Key Considerations:
- Amid the splintering of the old “Group of 2”, technology has become an industrial and political battleground.
- While the bifurcation of tech industries is not the most efficient way to build global supply chains, it does have some benefits.
- The US and its allies have seen a reverse flood of onshoring jobs and China has cut into the West’s lead in advanced chipmaking.
- We favor the agile enablers of these shifts, notably semiconductor equipment makers.
6) Regional Outlook
I) Asia: Faster growth for 2024 as headwinds recede
- Asian economic growth should improve in 2024 as we expect headwinds from high inflation, US policy tightening and China’s slowdown to abate.
- We see opportunities in Japanese equities and currency, India’s longer- term development, as well as some sectors in China as its policies take hold to dig its economy out of a deep slump.
Key Considerations:
- The easing phase in China’s policy cycle for improving risk/reward in Chinese industrials, consumer discretionary and government-priority technology segments may pose opportunities.
- We are maintaining our overweight to Indian equities despite still-high valuations, with a focus on materials, industrials and staples.
- Investors should consider Asian equity exposure that are supported by a backdrop of broader growth, lower inflation and interest rates, as well as a softer US Dollar.
II) Europe: Slow recovery, with stronger equity returns later into 2024:
- Europe’s more conservative monetary policy, in combination with the withdrawal of energy support measures, suggests a prolonged and muted “slow then grow” cycle relative to the US.
- This will leave European equities unattractive on a relative basis for most global investors. Fixed income will, however, provide local investors some rich potential opportunities for yield.
Key Considerations:
- We’re neutral Europe ex-UK, UK and
Swiss equities for now, but do see some potential opportunities for qualified clients in European real estate investment trusts (REITs), given the heavily discounted valuations of their underlying property portfolios. - Euro- and sterling-based local investors may benefit from high-quality government bonds given the historically high level of yields.
- Some improvement in business cycle dynamics by late spring/early summer, supported by a China recovery, may see us starting to add European equity exposure more broadly, starting with ex-UK.
III) North America: Emerging set of new opportunities:
- 2024 promises to be an eventful year in terms of politics, monetary policy and markets.
- We see the end of a series of “rolling recessions.” In particular, we believe that manufacturing will rebound after a 2022-2023 contraction while other sectors soften. Through it all, look for US gross domestic product (GDP) growth to slow modestly from about 2.4% in 2023 to 1.6% in 2024, before accelerating to 2.6% in 2025.
Key Considerations:
- Investors should consider tilting equity exposures toward small- and mid-sized companies (especially growth) and early cyclicals. These are places to potentially find growth amid an economic slowdown and capture market leadership shifts as the Fed eases.
- We believe this is a moment to lock in current high yields with investment- grade intermediate maturity bonds.
- Focus on beneficiaries of US-China polarization, including areas of tech and tech-enabled industrial stocks.
IV) Latin America: potential opportunities amidst low valuations:
- A transitioning US and global economy will make for some interesting, volatile and divergent opportunities across Latin America.
- Global investors will need to pick their spots, mindful of likely currency effects, long- term trends and shorter-term risks. One combination to consider is a US dollar (USD)- denominated and active hedging strategies of local rate positions as well as perhaps some selective tactical exposure to the low equity valuations of some of the country indices.
Key Considerations:
- Investor may consider locking in fixed income yields with selective USD- denominated debt.
- Domestic and foreign investors might still benefit from high (and falling) local rates.
- Equities are trading at attractive multiples, though it would depend on a pickup in global risk appetites to outperform.
About Citi
Citi is a preeminent banking partner for institutions with cross-border needs, a global leader in wealth management and a valued personal bank in its home market of the United States. Citi does business in nearly 160 countries and jurisdictions, providing corporations, governments, investors, institutions and individuals with a broad range of financial products and services.
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