Citi looks at how sustained economic growth in 2022 could impact portfolios following the year of the “great rebound” in 2021
Citi Global Wealth Investments today released its Outlook 2022 report, which acknowledges that the strongest phase of the economic and market recovery from the pandemic is likely behind us. More normal conditions lie ahead following the “great rebound,” with more moderate returns as the equity bull market matures. But rather than leaving portfolios as they are, Citi believes this normalization calls for investors to make important asset allocation changes.
In 2021, Citi recommended positioning for a snapback in many assets that had been hit hardest by the pandemic. These included emerging markets, small-cap equities and beaten-down cyclicals. For 2022 and beyond, by contrast, Citi emphasizes exposure to “long-term leaders”, equities in high-quality companies in expanding industries that may deliver superior earnings growth in the long run. Citi’s analysis shows that long-term leaders have delivered stronger returns with lower volatility over time. Examples include “dividend growers”, equities in companies with long records of increasing their dividends.
With inflation up but bond yields remaining low, Citi is reiterating the threat that negative real interest rates pose to wealth. “Owners of cash and many bonds have suffered a loss of purchasing power in 2021. We compare the effect of negative real rates to the activities of a cash thief, who we expect to remain at large in 2022. But we see various investments that may help clients preserve and grow purchasing power in the face of this threat,” said Ken Peng, Asia Pacific Head of Investment Strategy.
Citi has also identified “unstoppable trends” that are reshaping business and everyday life, as well as portfolios. These include multiple aspects of digitization such as cybersecurity, 5G and related technologies, and fintech, as well as the ongoing shift towards greener development. In each of these areas, the pandemic has accelerated change.
In Asia, we continue to believe in the themes of emergence of middle class, fast adoption of technology, and indigenous tech innovation and advancement. 2021 had been a tough year, as the region suffered from slow vaccine rollout, which had disrupted the global supply chains, while China’s regulatory policy uncertainty had led to large valuation losses among the Chinese concept stocks listed in overseas markets. “But we believe that some stability and predictability in China’s regulatory framework will likely return, and China’s macroeconomic policy easing is likely to gain momentum ahead of the 20th Party Congress this year. China is perhaps the only major economy in the world that is expected to ease policy while the rest of the world tightens,” said Li-Gang Liu, Asia Pacific Head of Economic Analysis for Citi Global Wealth, noting that this may present opportunities.
While we reiterate the importance of keeping portfolios positively positioned and fully invested, we also acknowledge a range of risks including vaccine-resistant COVID mutations, large-scale cyber-attacks and geopolitics. All of these will require close monitoring.
Released twice yearly, Outlook provides in-depth insights into the global economy and financial markets for the year ahead and beyond, also highlighting transformational, multi-year “unstoppable trends” for client portfolios. Formed in January 2021, Citi Global Wealth is a single, integrated platform serving clients across the wealth continuum, from the affluent segment to ultra-high net worth clients. It combined wealth management teams from Citi’s Global Consumer Banking (GCB) and the Institutional Clients Group (ICG).
The full report, a summary version, short videos and other materials can be accessed here.