We are delighted to share with you the Citi Private Bank Mid-Year Outlook 2021, which presents their expectations for the global economy and markets for the rest of 2021 and beyond.
It’s been one of the most challenging periods for humanity in living memory. Now, though, the end of the pandemic is coming into view and the global economy is heading for a full reopening. Despite the return of normality, Citi Private Bank also believes the world after COVID will be rather different from how it was before. Certain changes during the pandemic are likely to endure long after the virus is defeated. And they believe that this new economy needs to be reflected in investors’ portfolios.
In Mid-Year Outlook 2021, Citi Private Bank examines our exit from the pandemic and what lies beyond. They highlight the assets that still offer recovery potential even after the strong rally of the last year, but also explain why these are unlikely to be the investments that lead markets higher in the long term. They thus seek to exploit the trends that will keep reshaping the world beyond COVID.
Shawn Snyder
Head of Investment Strategy,
Citi Personal Wealth Management
Summary
Economy
Most economies are reopening, albeit unevenly. Pent-up demand for travel, a high level of personal savings, and government support augur well for a broader expansion that could last for years.
As we head into 2022, the return to normal will eventually transition into a more traditional expansion and mid-cycle conditions.
We believe the global economy should rebound from an annual decline of -4.0% in 2020 to an annual growth rate of +5.0% in 2021 and near that pace in 2022.
Stocks
We remain overweight cyclical assets. However, we have lowered exposures to some cyclicals that now fully embed recovery to reinvest in long-term growth assets.
Overweight: Global Healthcare stocks, UK, Europe, Residential and Commercial REITS, Asia (ex China) and Latin America.
Neutral: U.S. Japan, and Canada large-cap stocks. Non-U.S. small- and mid-cap stocks
Underweight: U.S. small- and mid-cap stocks and Emerging Europe, Middle East, and Africa (EMEA)
Bonds
As the economic recovery continues to play out, long-term bond yields are one area we believe will press higher. 10-Year US Treasury yields could reach 2.0% in coming quarters.
Overweight: U.S. Treasury-Inflation-Protected Securities (TIPS), variable-rate bank loans, Asian Emerging Markets debt.
Neutral: U.S. municipals, medium- and long-duration U.S. Treasuries, U.S. agency-backed securities, Europe high yield, and Emerging Market debt in Latin America, EMEA
Underweight: European and Japanese sovereign bonds and short-duration U.S. Treasuries
Risks to the Outlook
An unanticipated, major mutation of the virus that eludes vaccinations.
U.S. – China relations could worsen. Given significant trade linkages between the two countries, a fallout could have wide-ranging implications.
Cyberattacks on the world’s infrastructure remain an ongoing risk. Though increased investments to mitigate cyber risks also present a thematic investment opportunity.
