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Equities | Economy

Allocating Equity Overweights More Broadly

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  • The acceleration of COVID-19 in the US is likely to slow the recovery. While a broad-based, indiscriminate lockdown is not expected across the US economy, a slowdown in reopening activities has resulted in a modest drop in retail spending in employment in affected cities. This follows a strong “reopening” effect during May and June when key economic and employment measures in the US rebounded at a record pace. Globally, Citi analysts have lowered 2020 GDP expectations by -0.2pp to -3.7%, but raised 2021’s forecast by 0.1pp to 5.6%.

 

  • A resumption of impact from COVID-19 was always expected and may be less surprising for markets than the initial shock. Citi analysts see adaptive actions in the economy (such as greater work from home) coupled with strong “bridging” stimulus steps by policymakers keeping a fragile, new recovery intact.

 

  • The Technology sector has been the strongest beneficiary to date as interest rates stay low and significant trends in ecommerce, digital communications, virtual office and cloud usage were sharply accelerated by the social impediments of the pandemic. “Digitization” is one of Citi’s unstoppable trends, and while Citi analysts do not see a fundamental reason for an immediate correction, certain elements of the “COVID-19 defensives” rally appear unsustainable and represent a concentrating risk for portfolios. Five US tech-related firms now constitute nearly 15% of global equity market capitalization.

 

 

  • A narrow focus on performance tends to accumulate overweights in the most over-valued assets in time. Given so, Citi’s Global Investment Committee (GIC) is overweight global equity, allocating more broadly across beaten down sectors to increase diversification.

 

  • Overweight on US small and mid-caps (SMID), Emerging Markets (Asia and Latin America), and global Real Estate Investment Trusts (REITs). Citi analysts expect US SMID to catch up in performance to US large cap shares, despite sector and quality differences favoring large caps to date. Increasingly, SMID is seen as more favorably positioned across the world coming out of the crisis. In Emerging Asia, Chinese shares, particularly those in the technology and internet sector have risen sharply in recent months. While some near-term consolidation could be expected, long-term optimism on Asian consumption, technology and healthcare themes remains intact. Over in Latin America, valuations have improved after a deep selloff. Given the severe underperformance relative to other markets, the region could perform well coming out of the crisis. Citi analysts also hold an overweight in global equity REITs in a special thematic allocation as real estate assets may be pricing in fairly extreme pessimism.

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs,
and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong
and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under
the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom
it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making
an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated
with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for
themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from Its use.

CSL does not provide discretionary portfolio management services.

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients.

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited
is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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