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Economy | Asset Allocation

Balancing Risks and Opportunities as the Pandemic Accelerates

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  • According to the World Health Organization, the number of COVID-19 cases globally crossed the 1 million mark on 2 April and as of 5 April, there are 1,136,000 cases in 208 countries. The US now has the most number of cases at 273,000, more than 82,900 in China. In Citi’s view, the speed and depth with which governments respond aggressively to the health threats of COVID-19 could play a major role in disease outcomes, as well as in the length of time the pandemic may impact its society.

 

  • Current mitigation strategies range from very limited (Iran, Mexico) to extensive (China, South Korea) with other countries, like the US, adopting a decentralized approach.

 

  • The likelihood of significant disease spread across the US remains strong as the mitigation plans were not centralized, nor optimized. Citi analysts expect that major cities with high levels of international air traffic may see the greatest impacts, but are also concerned about smaller cities that have not taken precautions due to their belief that the current levels of disease are indicative of future outcomes.

 

Citi’s view on the financial markets and asset allocation

  • During this period of uncertainty, It is crucial to maintain an investment philosophy that includes maintaining a well-balanced diversified portfolio and avoid the temptation to rapidly change allocations. Value exists in areas including the health care sector, Asian equities and capital markets structures that take advantage of elevated volatility at this time. Citi analysts also think that new portfolios can be properly established by having a disciplined plan to invest over time.  

 

While Citi analysts are confident in an eventual recovery, there are four major risks to our outlook and near-term market performance. These are:

  • When the economy will turn back on and the speed with which it will do so;
  • Global macro risks including supply chain disruptions and a lack of international cooperation;
  • Implementation of policy: Can governments deliver the benefits they promise in a timely fashion?
  • Unavoidable credit impacts that could include defaults, credit downgrades, bankruptcies or business closures.

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

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