Citi Wealth Insights

Just as we have seen a recent repricing of tech shares in the US, we have also seen a repricing of tech and consumer shares in China. This negative performance was driven by a broad tightening in credit and regulatory policies that Citi Global Wealth Investments (CGWI) identified in January when we reduced our China allocation down from overweight to neutral.

Citi analysts suspect that markets may be range bound in 2Q with some volatility from policy uncertainty, but this is a necessary process as investors get accustomed to a more normal policy backdrop. In summary, Citi’s analysis of sensitivities to rising US yields and to tightening Chinese credit conditions supports a neutral allocation in China, Korea and Taiwan equities, while remaining overweight in Southeast Asia.

Asian economies have been relatively resilient thanks to better pandemic management and strong export growth, particularly in North Asia. However, the state of inflation has remained subdued throughout the region so far, with the average Consumer Price Index (CPI) lower than that in the US. The strong export recovery has also led to wider current account surpluses and comfortable FX reserves, which also make emerging Asia more resilient towards real rates which have been rising in the US.

Citi analysts adjusted their asset allocation to reflect the greatest potential beneficiaries of the ongoing recovery, while also managing risks to some of the best performing markets so far.

Political developments may occupy investor attention but COVID-19 and vaccines could remain the major factor that drives investment returns in 2021-2022.

After a summer reprieve, the rise of a second wave of COVID-19 in US & Europe was widely anticipated. In comparison, COVID-19 infection rates have remained dramatically lower in much of Asia.