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.
While market volatility may occupy day traders in the ensuing trading sessions, Citi analysts continue to expect the emergence from COVID-19 restrictions to dominate the economic and market dynamics in the coming year.
Consensus forecasts a 26% rebound in global earnings per share in 2021. The slow starting point for vaccinations in early 2021 means it may take a bit longer than a year to reach their expected level. Yet the gains they expect are reasonable, as is further growth beyond.
A horde of internet traders has taken aim at select favored shorts among the hedge fund community, rallying countless retail investors. Citi analysts think this episode is unlikely to have long-term consequences for broader equity markets with fundamentals ultimately driving markets. In Citi’s view, corporate cash flow and earnings, the ability to execute strategy, build and sustain market share, and to do so in both an ethical way, are likely to be the determinate of value and wealth creation over time.
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.
US President Biden proposed a support package of US$1.9 trillion, which if passed in the state presented, adds the capacity to address immediate needs with enough aid to address a longer-lasting crisis if needed. Regulatory approvals of more vaccines in the US and Europe are also pending and appear positioned to succeed in the developing world given their less stringent storage requirements.
