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Asset Allocation | Equities | Fixed Income | FX

COVID-19: Reassessing Portfolio Allocation

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Market reaction

  • US stocks fell sharply in volatile trading on Thursday as investors worried that COVID-19 may be spreading in the US. Dow Jones Industrial Average fell 4.4%, the S&P 500 Index slipped 4.4% and the Nasdaq Composite dropped 4.6%. The S&P 500 hit the lowest in 19 weeks with its sixth consecutive decline and the largest single-day fall in more than eight years.

 

  • This is in contrast to the S&P 500 Index and Nasdaq Composite setting record highs last week. The overnight losses put the three US major indices in correction territory, which is defined on Wall Street as a fall of 10% from their recent high.

 

Economic disruption, albeit temporary

  • The tragic public health shock is not the primary mean of economic dislocation. It is government travel restrictions, quarantines, supply chain disruptions and changes in individual behavior that are primary sources of short-term economic disruption.

 

  • As seen in previous global and regional health epidemics, economies typically rebound sharply when the health threat itself has passed.

 

  • Citi analysts have reduced their 2020 global growth forecasts from 2.7% to 2.5%, nearly the weakest since the global financial crisis. China’s growth forecast for 2020 has been reduced from 5.8% to 5.3%. Visibility on the economic outlook has been reduced by the latest virus news and the transmission of the Chinese economic slowdown to the rest of the world implies more downgrades to the global growth forecasts could be further ahead. Elevated volatility is likely in the near-term as markets continue to digest the economic and earnings impact of COVID-19.

 

GIC Asset Allocation – Shift from Overweight to Neutral Equities; Increased Overweight to US Treasury and Gold

  • With markets reacting very rapidly, both positive and negative scenarios may play out in coming months, arguing for a more neutral asset allocation. Citi’s Global Investment Committee has turned neutral on global equities (from overweight) and added allocations to US Treasuries and Gold due to their relatively more safe haven properties.

 

  • Equities: While equities have stronger valuation support than global fixed income markets compared to their long-term history, equities are far more volatile and contingent on economic strength. A previously-anticipated earnings recovery in 2020 is now likely to face significant delay. In equities, Citi analysts continue to favor higher quality firms that have balance sheets able to weather an economic disruption. Dividend growers also remain particularly appealing.

 

  • Fixed Income: Citi’s GIC has decreased the underweight to global fixed income, by adding to an overweight allocation to US Treasuries (USTs). Other US dollar investment grade bonds also remain overweight.

 

  • Gold: An overweight allocation to gold has been further increased, which acts a risk hedge in times of rising volatility

 

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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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