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New Economic Cycle, New Opportunities

Key Takeaways

  • While there is a greater risk of a winter slump or lull in Western economies as COVID-19 accelerates, the underlying trends point to a global recovery in trade and industrial activity in 2021. With large-scale production and additional vaccines likely, an end to the global pandemic is expected to begin by mid-year 2021, bringing a potential sharp broadening out of the world economic recovery in the second half of 2021.
  • Citi’s Global Investment Committee (GIC) thus increased its Overweight in Equities, and increased its Underweight in Bonds. Gold and Real Estate Investment Trusts (REITs) remain Overweight while Cash remains Underweight.
  • Citi analysts favor selected cyclical sectors, global small/mid caps and regions such as Europe, Asia and Latin America to have strong returns in the next 12-18 months as markets recover. Over the longer term, Citi maintains a commitment in Unstoppable trends -  Rise of Asia, Increasing Longevity, Digital Disruption, and New Energy.


Rebounding to growth in 2021

COVID-19 devastated the global economy in 2020, but a recovery is expected in 2021 given the arrival of viable vaccines. Citi economists expect global real GDP to rebound by 5.0% in 2021. Developed Markets’ (DMs) GDP are forecast to rebound 4.1% in 2021, while Emerging Markets (EMs) could grow 6.2% in 2021.


As a result, Citi analysts believe that global Earnings-Per-Share (EPS) could contract by 20% in 2020, followed by a 25% rebound in 2021. Consensus on the other hand is more optimistic and expects a 14% contraction in 2020, followed by a 26% rebound.


Central banks providing support

The path to full recovery in the medium to long term relies on continued monetary and fiscal support. Central banks’ 12 month rolling global asset purchases are expected to reach $5 trillion, more than double previous highs. This measure is expected to peak in 1H 2021. Citi economists worry that any modification of quantitative easing (QE) could upset financial markets later in 2021 but more than any fiscal spending package or central bank lending program, Citi analysts believe that the healthcare solution to COVID-19 has the greatest potential to restore economic activity to its full potential.


Wealth Themes

Renew your Portfolio in the New Economic Cycle

Citi analysts forecast 2021-2022 is likely to be a period of recovery and strong economic growth based on: viable vaccines, a rebound in trade and industrial production, pent up demand for services and global stimulus.


COVID-19 resulted in a sharp dispersion in equity returns. In particular, the “Stay at Home” equities, which benefit from COVID-19 related disruptions and a shift to remote work increased 45% in 2020, while COVID-19 cyclicals fell by 35%.


Short-term recovery plays

As markets recover, Citi analysts favor selected cyclical sectors, and global small/mid caps as well as regions such as Europe, Asia and Latin America to have strong returns in the next 12-18 months.


Long-term Unstoppable trends

Citi maintains a commitment in Unstoppable trends which are likely to last for two decades or more:

  • Rise of Asia – Companies exposed to EM consumerism;
  • Increasing Longevity – Focusing on healthcare technology;
  • Digital Disruption – 5G, Cyber Security, Fintech, Artificial Intelligence, Data Storage (Big Data), Internet of Things;
  • New Energy – Smart Grids, Solar, Wind, Hydro, Energy Storage and Energy Efficiency.


Rebalance to Drive Yields

Holding excess cash in today’s ultra-low interest rate environment is a costly strategy. Citi analysts therefore continue to look for opportunities to pick up yield, while staying diversified in portfolio risks.


Bonds – US High Yield (HY) and Emerging Market Debt (EMD)

  • US HY – Fallen Angels (IG issuers downgraded to HY) offers an opportunity, given its higher quality and longer duration.
  • EMD – With 1/4 of the world’s fixed income markets trading with yields below zero, the 4.4% yield in USD EM markets appears attractive.



  • REITs may benefit from recovery in property fundamentals, low interest rates and credit easing.


Dividend plays

  • Equities now generate dividend yield twice the global bond aggregate yield.
  • Citi analysts prefer companies that have strong earnings prospects and a history of maintaining dividend payments.


Recycle: The Power of Investing with Purpose

The Global Sustainable Investment Alliance (GSIA) estimated that the sustainable investing market was US$22.9 trillion in 2016 and US$30.7 trillion at the start of 2018. A more recent 2020 study estimates that investment in Environmental, Social and Corporate Governance (ESG) funds is now over US$40 trillion, increasing by approximately US$10 trillion every two years with a growth trajectory that shows no sign of abating.


Climate change / New Energy

The “greening” of energy supplies is now being driven more by market forces than legislation. Citi analysts expect further gains in technological innovation, electrification and efficiency in coming years.

In 2020, the MSCI Global Alternative Energy Index has outperformed global equities, having outperformed the traditional energy sector to an even greater extent (chart 1).




Position for Extended USD Weakness, a Stronger RMB and Ultra-low Yields

The USD is likely to remain weak as – (1) the Federal Reserve (Fed) engineers further falls in US real yields to fulfil “soft inflation averagingmandate; (2) Fed underwrites any shortfall in fiscal stimulus via further monetary stimulus; (3) Vaccine optimism builds a more positive risk backdrop and less safe haven demand for USD.


Prefer EUR, GBP & Gold

Prefer EUR, GBP and Gold to benefit from favorable yield / policy differentials with the Fed, a Brexit deal as well as fading 2nd wave risks in Europe versus added lockdown risks in US.


Favor CNY proxies to benefit from China’s growth story

Favor CNY proxies EUR and SGD (as a regional Asia EM proxy) as well as Commodity FX – AUD is the natural pick but dovish RBA and Australia–China trade tensions may see NZD & CAD preferred.



Increased Overweight in Equities, and increased Underweight in Bonds. Gold and REITs remain Overweight while Cash remains Underweight.


  • Citi’s Global Investment Committee (GIC) increased weights to developed markets ex US and to emerging markets ex China.
  • International trade discord seems far less likely with a Biden-led US administration and markets may benefit from the end of trade restraints.
  • EM equities could also benefit from low US interest rates and weak USD. While Chinese equities gained sharply in 2020, EM equity valuations overall are near a record 35% discount to US equities on prospective 2021 EPS.


Fixed Income

  • The GIC reduced short-term US Treasury holdings given near zero yields.
  • The GIC also reduced weights in EMD and US High Yield: While EMD and US High Yield could be further supported by recovery from the COVID-19 shock, declines in yields are now pronounced.




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