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Citi Wealth Insights

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Sifting Through Divided World Markets

Strong returns in global equity returns are expected in the year ahead. However, this could be lessened compared to the powerful rebound from the crisis a year ago in anticipation of economic recovery and could also be less evident at the broad index level. With global equities gaining 25% since the end of 2019 and 10% year-to-date (as of 22 April), Citi’s Global Investment Committee (GIC) has moderated down their global equity overweight and reduced their global fixed income underweight by allocating more to variable rate bank loans.
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Higher Rates vs Global Recovery - Navigating the Volatility

With effective vaccinations surging and infection rates falling, Citi analysts expect global GDP growth to rebound to 5.5% in 2021 and 4.0% in 2022. Despite risk of inflation and higher yields, rising yields are unlikely to signal the end of the equity bull market, as earnings growth in 2021 and 2022 are expected to offset higher and more normal levels of interest rates rising from ultra-low levels. Citi’s Global Investment Committee thus increased its Overweight in Equities, reduced its Underweight in Bonds and reduced Gold from Overweight to Neutral. Real Estate Investment Trusts (REITs) remain Overweight while Cash remains Underweight.
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Winners & Losers from Biden’s Infrastructure Plan

Negotiations could cause many changes to the bill before a final vote is taken, but much of President Biden's infrastructure plan appears to complement several of Citi’s “Unstoppable Trends”.
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Biden’s Infrastructure Plan & Impact on Equities

Biden’s “once-in-a-generation” US$2.25 tn infrastructure plan is aimed at modernizing America’s transport networks over 8 years, and includes substantial funding for initiatives such as cleaner water, transport electrification and high-speed broadband. The expenditure is expected to partly be covered by increasing the corporate tax rate from 21% to 28% and establishing a global minimum tax for multinationals.
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Rates vs Recovery - Navigating the Volatility

For bondholders, the past few weeks have been rough. In Citi’s view, they are likely to stay rough until a new equilibrium in rates markets is secure. The return of long duration US Treasuries (20+ years) is about -12% this year. 10-Year Treasury yields have moved up 65 basis point in 2021 alone, having risen from 50bp in mid-2020 (the lowest ever recorded) by more than 1%. With short-term rates pinned down by the Federal Reserve (Fed), the likelihood that the yield curve steepens further at the beginning of this New Economic Cycle seems a near certainty.
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Staying Positive on Global Equities

Present interest rate levels and early-cycle growth conditions still favor equities more than bonds. Barring a massive bout of exuberance in equities and a sharp rise in yields, the Citi's Global Investment Committee is likely to overweight equities for a lengthy period.
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