Citi Global Wealth Outlook 2023: Markets in 2023 Lead Recovery in 2024, Underweight Equities, Overweight Fixed Income, Opportunities for Loans in Private Markets, Equities +10%, Fixed Income +5.1%, Cash +3.4%, Hedge Funds +9.5%, Private Equity +18.6%, Real Estate +10.6%
14th January 2023 | Hong Kong
Citi has released the Citi Global Wealth Outlook 2023, providing key insights into the outlook on global economy in 2023, investment trends, opportunities, key trends, portfolio allocation, and asset class returns estimates. Citi expects the market in 2023 to lead recovery in 2024, underweight Equities in 2023 (overweight Equities in Large US, Thematic, Emerging Market), overweight Fixed Income, and opportunities for loans & lending in Private Markets. Citi Asset Class Returns forecast for 2023 – Equities (+ 10%), Fixed income (+5.1%), Cash (+3.4%), Hedge Funds (+9.5%), Private Equity (+18.6%), and Real Estate (+10.6%). For Alternative Investments, focus on distressed lending / re-capitalization, favorable valuations for investors into Venture Capital. For Real estate, value may be earned over time by taking illiquidity risk. Preferred Sectors – Financials, Consumer Discretionary, IT, and Telecom. Citi Unstoppable Trends – Digitization, G2 Polarization (US & China), Greening the World, Increasing Longevity, Growth in Alternatives, Real Estate. Citi also identified 3 Milestones in 2023 – 1) Need to get through a recession in the US, 2) Need to get through a deeper recession in Europe, 3) Fed reduce rates for the first time in 2023. The Citi Global Wealth Outlook 2023 is titled – Roadmap to recovery: Portfolios to anticipate opportunities. See below for key summary.
“ Markets in 2023 Lead Recovery in 2024, Underweight Equities, Overweight Fixed Income, Opportunities for Loans in Private Markets, Equities +10%, Fixed Income +5.1%, Cash +3.4%, Hedge Funds +9.5%, Private Equity +18.6%, Real Estate +10.6% “
Citi Global Wealth Investments Head & Chief Investment Officer David Bailin: “Over time, the US stock market has never bottomed before an associated recession has even begun, so we regard recent equity upside as a bear market rally. A year like 2022 can make holding excess cash seem tempting, but the clear lesson of history is that this almost always leads to missing opportunities when markets begin to recover. For 2023, we reiterate the fundamental wisdom of keeping portfolios fully invested, anticipating the opportunities that we expect.”
Citi Global Wealth Investments Chief Investment Strategist & Chief Economist Steven Wieting: “The sharp declines across many asset classes in 2022 has left long-term valuations more attractive.
For the first time in several years, for example, we see genuine portfolio value in fixed income. Short duration US Treasuries present a compelling alternative to holding cash.”
Citi Global Wealth Investments Head of Asia Investment Strategy Ken Peng: “In equities, we seek exposure to recovery in China and Hong Kong, with initial focus on re-opening beneficiaries, followed by industries that have policy support. In fixed income, we favour higher rated financials, energy, materials and tech/telecom.”
Citi Global Wealth Outlook 2023
Citi has released the Citi Global Wealth Outlook 2023, providing key insights into the 2023 outlook on global economy, investment trends, opportunities, portfolio allocation, and asset class returns estimates.
Citi Global Wealth Outlook 2023
Key Summary – 2023 Outlook
- 2022 Review – War in Ukraine hugely distorted global food and energy supply chains. Divide between the US and China. Greater separation between East and West
- 2022 Outcome – Fed instigated its fastest set of interest rate increases ever. Equities & bonds declined in tandem, with joint losses of about 20% at the low point
- Markets Lead Economies – The poor market returns of 2022 anticipate the economic weakness we expect in 2023. Markets in 2023 will lead the economic recovery we foresee for 2024, providing opportunities for investors in 2023.
- 3 Milestones – Need to get through a recession in the US, Need to get through a deeper recession in Europe, Fed reduce rates for the first time in 2023
- Unstoppable Trends – Digitization, G2 Polarization (US & China), Greening the World, Increasing Longevity, Growth in Alternatives, Real Estate
- Digitization Themes – Payments, E-commerce, Metaverse, Social Media, Robotics, Fintech, Cyber Security, AI & Cloud Computing, Healthcare Tech
Key Summary – Investments in 2023
- Higher return forecasts due to 2022 decline (10-year annualised) – Equities 10% , Fixed Income 5.1%, Cash 3.4%
- Asset Class Returns Forecast 2023 – Equities (+ 10%), Fixed income (+5.1%), Cash (+3.4%), Hedge Funds (+9.5%), Private Equity (+18.6%), Real Estate (+10.6%)
- Investment Opportunities – Fixed income, Loans in private markets
- Underweight Equities – Global (Overweight Equities in Large US, Thematic, Emerging Market)
- Overweight Fixed Income – Global, Developed Investment Grade, US Investment Grade, Thematic Fixed Income
- Equities – Companies with strong balance sheets & healthy cash flows. More defensive equities for the near term, Dividends paying companies.
- Fixed Income – Quality short-to intermediate-term US dollar fixed income, such as Treasuries and investment-grade rated corporates/municipals / preferred . Various “deep value” non-US dollar assets (such as income-producing real estate) once the US dollar peaks
- Alternative Investments – Distressed lending / re-capitalization, Favorable valuations for investors into Venture capital. For Real estate, value may be earned over time by taking illiquidity risk
- Tailored investments – Take advantage of higher rates and volatility to provide yield and/or market participation with embedded downside hedges, and entry points below current spot prices
- Preferred Sectors – Financials, Consumer Discretionary, IT, Telecom
1) Citi Global Wealth Outlook 2023
- 2022 Review – War in Ukraine hugely distorted global food and energy supply chains. Divide between the US and China. Greater separation between East and West
- 2022 Outcome – Fed instigated its fastest set of interest rate increases ever. Equities & bonds declined in tandem, with joint losses of about 20% at the low point
- Markets Lead Economies – The poor market returns of 2022 anticipate the economic weakness we expect in 2023. Markets in 2023 will lead the economic recovery we foresee for 2024, providing opportunities for investors in 2023.
- 2023 First Milestone – Need to get through a recession in the US that has not started yet. Tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.
- 2023 2nd Milestone – Need to get through a deeper recession in Europe
- 2023 3rd Milestone – When the Fed does finally reduce rates for the first time in 2023.
- Higher return forecasts due to 2022 decline (10-year annualised) – Global Equities 10% , Global Fixed 5.1%, Cash 3.4%
- Investment Opportunities – Fixed income, Loans in private markets
- Equities – Companies with strong balance sheets & healthy cash flows. Dividends paying companies.
- Alternative investments – Specialist managers will be able to deploy capital into areas of distress and illiquidity. Favorable valuations for investors into Venture capital. For Real estate, value may be earned over time by taking illiquidity risk when others are less willing to do so.
Economic, Monetary & Earnings Outlook 2023
- A shallow US recession and worse in some other places such as the Eurozone
- A recovery in Chinese growth, by contrast, as pandemic restrictions are relaxed
- US inflation continuing to ease, ending 2023 at around 3.5%
- The US Federal Reserve to stop raising rates in 1Q and may start cutting interest rates by the second half of the year
- A 10% drop in global earnings per share
2023 Investment Opportunities
- Equities – More defensive equities for the near term, including dividend growers
- Fixed Income – Quality short-to intermediate-term US dollar fixed income, such as Treasuries and investment-grade rated corporates/municipals / preferred . Various “deep value” non-US dollar assets (such as income-producing real estate) once the US dollar peaks
- Tailored investments – Take advantage of higher rates and volatility to provide yield and/or market participation with embedded downside hedges, and entry points below current spot prices
- Sectors – Digitization (robotics), semiconductor equipment, cyber security, fintech, real estate, e-commerce logistics, multifamily homes and quality, sustainable offices
- Alternatives – Distressed lending/ re-capitalization
- Energy Transition – Companies driving the transition to secure cleaner sources of energy
- Healthcare – Pharmaceutical Biologics, Life Science tools, Value-based care and Agetech
- Supply Chains – Potential beneficiaries of G2 polarization as supply chains are reconfigured, including sectors in India, Southeast Asia and Mexico
2) Citi Portfolio Allocation
Asset Class
- Underweight – Equities
- Overweight – Fixed Income
- Overweight – Gold
- Underweight – Cash
Equities
- Overweight Equities – Large US, Thematic, Emerging Market
- Underweight Equities – Global, Developed, Large Developed ex-US, Developed Small- and Mid-Cap
Fixed Income
- Overweight Fixed Income – Global, Developed Investment Grade, US Investment Grade, Thematic Fixed Income
- Underweight Fixed Income – Developed High Yield, Emerging Market Debt
3) Strategic Returns Estimates (2023)
- Global equities: +10%
- Global Fixed income: +5.1%
- Developed Market equities: +9.5%
- Emerging Market equities: +13.6%
- Investment-Grade Fixed income: +4.6%
- High-Yield Fixed income: +7.4%
- Emerging Market Fixed Income: +7.8%
- Cash: +3.4%
- Hedge Funds: +9.5%
- Private Equity: +18.6%
- Real Estate: +10.6%
- Commodities: +2.4%
Based on data as of 31 Oct 2022
4) Asset Allocation Strategy
Portfolio income with short-term bonds
- US Treasuries
- Investment-grade credit
- US municipals (Tax advantages for US taxpayers)
- Floating/short-callable preferred securities
Dividend-paying equities
- Quality equity income as a core portfolio allocation
- Quality income, not just high income
Equities – Preferred Sector (Global)
- Financials
- Consumer Discretionary
- IT
- Telecom
Equities – Preferred Sector (Europe)
- Consumer Staples
- Healthcare
5) Fixed Income
APAC Fixed Income Yields
- Japan 10y Sov – 0.3%
- China 10y Sov – 2.8%
- Thailand 10y Sov – 2.9%
- South Korea 10y Sov – 3.8%
- Malaysia 10y Sov – 4.4%
- China IG (USD) – 6.2%
- Asia ex-Japan IG Corporates (USD) – 6.6%
- India 10y Sov – 7.3%
- Indonesia 10y Sov – 7%
- Asia ex-Japan Sovereign (USD) – 7.1%
- Asia ex-Japan HY Corporates (USD) – 20.4%
- China HY (USD) – 27.8%
Sov ~ Sovereign
EMEA Fixed Income Yield
- Swiss 10y Sov – 1.01%
- Germany 10y Sov – 2.43%
- Netherlands 10y Sov – 2.25%
- Austria 10Y Sov – 2.43%
- Belgium 10Y Sov – 2.45%
- France 10y Sov – 2.54%
- Ireland 10y Sov – 2.55%
- Portugal 10y Sov – 3.91%
- Euro-Aggregate IG Index – 3.14%
- UK 10y Sov – 2.97%
- Euro IG Corporates – 3.14%
- Italy 10y Sov – 3.91%
- Spain 10y Sov – 3.97%
- Greece 10y Sov – 4.24%
- GBP IG Corporates – 5.48%
- GBP HY Corporates (ex-financials) – 7.79%
- Euro HY Corporates – 10.35%
- Euro Capital Securities – 10.8%
EMEA ~ Europe, the Middle East and Africa
North America Fixed Income Yield
- US HY Corporates – 8.7%
- US HY Bank Loans – 8.7%
- Emerging Markets Agg (USD) – 8.2%
- US HY Preferreds – 8.2%
- US IG Preferreds – 7.5%
- US HY Corporates (BB-rated) – 7.1%
- US IG Corporates (BBB-rated) – 5.7%
- US IG Corporates – 5.4%
- US CMBS (IG only) – 5.5%
- US ABS (fixed-rate) – 5.5%
- US Agency Mortgage-backed – 4.7%
- US Treasury 10-year – 4.2%
- Canada Sov 10-year – 3%
- US Municipals 10-year – 2.9%
Latin America Fixed Income Yield (Selected)
- Mexico 10Y Sov (USD) – 5.6%
- Brazil 10y Sov (USD) – 6%
- Latin America Agg (USD) – 8.4%
- Mexico 5y Sov (local) – 12.8%
- Brazil 4y Sov (local) – 13.8%
6) Unstoppable Trends
- Digitization – Semiconductors, Automation, Internet (Including Web 3.0 & Metaverse)
- G2 Polarization – Beneficiaries include India, Indonesia, Malaysia, Philippines, Mexico (Securities of Supply Chain over Efficiency), China drive for self-reliance
Greening the World – Energy Security, Accelerated Transition, - Increasing Longevity – Healthcare, Biologics, Life Science, Value-based Care, Agetech
Growth in Alternatives – Technology-focused strategies from venture capital, growth, buyout and private debt managers) - Real Estate – Digitization, Specialist managers focusing on multifamily homes, e-commerce–related properties and quality offices in select locations
G2 ~ informal special relationship between the People’s Republic of China and the United States of America
7) Digitization Themes
- Payments
- E-commerce
- Metaverse
- Social Media
- Robotics
- Fintech
- Cyber Security
- AI & Cloud Computing
- Healthcare Tech
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.
Citi Global Wealth is an integrated wealth management platform that delivers a total wealth solution to clients across the wealth continuum. Citi Global Wealth serves ultra-high-net-worth individuals and family offices through Citi Private Bank, operates in the affluent and high-net worth segments through Citigold® and Citigold Private Client, captures wealth management in the workplace through Global Wealth at Work and provides premium banking and lending service for clients of RIAs through Citi Alliance. Citi Global Wealth provides clients with a leading investment strategies platform, which delivers traditional and alternative investments, managed account strategies, best-in-class research and investment guidance for all clients.
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