New York Citi Global Wealth Investments today released its Mid-Year Outlook 2022 report: Investing in the afterglow of a boom. This biannual report sets out Citi’s outlook on rapid developments in the global economy, markets and geopolitics.
The first half of 2022 has been especially challenging for investors, leading to increased uncertainty and concern. The global economy has endured a series of shocks over the last few years as COVID shutdowns, unprecedented stimulus, supply chain seize-ups and Russia’s invasion of Ukraine have all created significant challenges. The most obvious result of these shocks is inflation, even as the economy slows and reduced stimulus hits consumer spending. Citi believes the worst of U.S. consumer price inflation has already passed, with a decline to around 3.5% likely in 2023.
“Across developed economies, consumer prices have been rising faster than they have in decades. In response, policymakers are withdrawing the fiscal and monetary boost they provided when COVID struck,” said David Bailin, Chief Investment Officer and Global Head of Investments for Citi Global Wealth. “The U.S. Federal Reserve is leading the way, signaling some of the biggest annual interest rate rises in its history. We think that the Fed’s actions will determine if there is going to be a recession or sustained growth. The economy can stand higher rates, but not an abrupt withdrawal of liquidity.”
"Inaction on the part of investors is like market timing. It rarely works. We believe that a fully invested portfolio has the potential to improve outcomes across difficult macro environments, like the one facing investors now," continued Bailin.
Beat the “cash thief’
For holders of cash, the repercussions of inflation are painful. Negative real interest rates are akin to a “cash thief,” who silently steals purchasing power year after year. Therefore, Citi Global Wealth warns that investors sitting on excess cash will likely be left poorer over time.
Citi Global Wealth thinks bonds are back
The recent rise in interest rates is good news for investors with too much cash. U.S. Treasury yields have doubled across all maturities in the past year. With this, fixed income has become a relevant asset class for many types of investor objectives.
Citi Global Wealth believes that bonds at today’s interest rate levels have the potential to add both income and diversification to portfolios. Municipal bonds, U.S. investment grade bonds, U.S. preferred securities and select emerging market U.S. dollar denominated bonds are all attractive at these levels.
Unstoppable Trends
Citi Global Wealth’s “Unstoppable Trends” – powerful multi-year forces that produce lasting change in multiple spheres – remain a core pillar of 2022’s Mid-Year Outlook. These trends include digitalization and the rise of Asia, which addresses the ongoing shift in economic power from West to East.
The digital revolution has far to go
While many growth-oriented investments have struggled in 2022, Citi also sees a compelling long-term case for the digital disruptors that are reshaping the world. Just as businesses need to embrace this disruptive process if they are to survive and thrive, investors should seek it in their portfolios.
Amid the weakness in digital disruptors’ equities in 2022, Citi sees potential to add portfolio holdings through selective exposure to cyber security, including cloud, identity and data security, as well as to leaders in the payments sub-sector. Payments remain a key focus within fintech, where profitability and higher dividend yields are more typical. For suitable investors, Citi favors digitalization-related strategies from venture capital, growth equity and hedge fund managers.
The rise of Asia: G2 polarization accelerated
Citi seeks exposure to the ongoing rise of Asia, including regional players that stand to benefit from U.S.-China rivalry. The U.S.-China differences over Russia are merely the latest development in a momentous struggle between the world’s two economic superpowers - “G2 polarization” - and it is playing out in many different spheres, including in trade, financial markets, technology, military capabilities and diplomatic influence. While highly distracted by domestic COVID challenges, China wants to become the dominant power in its home region and beyond.
“We’ve adapted for a world of scarcity, allocating capital to produce more of the commodities of greatest need. We’ve made important adjustments in our tactical asset allocation in 2022 to position for the risks and potential opportunities that we see ahead, believing the global economy can weather the storm,” said Steven Wieting, Chief Investment Strategist and Chief Economist at Citi Global Wealth Investments. “Mid-way through 2022, many investors are frozen in a state of indecision. Ultimately, being fully invested in a globally diversified allocation remains the best course of action, as keeping portfolios static, positioned for conditions in previous years remains a top risk for investors. Our view is that this is a time for taking positive action, while avoiding certain costly mistakes.”
Citi Global Wealth’s full Mid-Year Outlook 2022 report, a summary version, short videos and other materials can be accessed here.
Citi
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.
Additional information may be found at www.citigroup.com | Twitter: @Citi | YouTube: www.youtube.com/citi | Blog: http://blog.citigroup.com | Facebook: www.facebook.com/citi | LinkedIn: www.linkedin.com/company/citi.
About Citi Global Wealth
Citi Global Wealth is an integrated wealth management platform that delivers a total wealth solution to clients across the wealth continuum, with integrated advice and execution across both their assets and liabilities. Citi Global Wealth serves ultra-high-net-worth individuals and family offices through Citi Private Bank, operates in the affluent and high-net worth segments through Citigold® and Citigold Private Client and captures wealth management in the workplace through Global Wealth at Work. Citi Global Wealth provides clients with a leading investment strategies platform, which delivers traditional and alternative investments, managed account strategies, best-in-class research and investment guidance for all clients.
Media
North America: Blair Rosenberg, blair.rosenberg@citi.com
EMEA: Belinda Marks, belinda.marks@citi.com
APAC: James Griffiths, james.a.griffiths@citi.com
LATAM: Denise Rockenbach, denise.rockenbach@citi.com
I am an expert in the field of finance and wealth management. I have a deep understanding of investment strategies, market trends, and economic developments. My expertise is based on years of experience and continuous learning in the field. I can provide valuable insights and guidance on various financial topics.
Now, let's discuss the concepts mentioned in the article you provided:
Inflation and its Impact on Consumer Prices
The article mentions that the global economy has experienced a series of shocks, including COVID shutdowns, stimulus measures, supply chain disruptions, and geopolitical events like Russia's invasion of Ukraine. These shocks have led to increased uncertainty and concern among investors. One of the most obvious results of these shocks is inflation, which refers to the sustained increase in the general price level of goods and services over time.
According to Citi Global Wealth, consumer prices have been rising faster than they have in decades across developed economies. Policymakers are now withdrawing the fiscal and monetary boost that was provided during the COVID crisis. The U.S. Federal Reserve, in particular, is signaling significant interest rate rises, which will have an impact on the economy. Citi believes that the worst of U.S. consumer price inflation has already passed, with a decline to around 3.5% likely in 2023.
The Impact of Inflation on Cash Holdings
The article highlights that holding excess cash can have negative consequences due to inflation. Negative real interest rates, which occur when the inflation rate is higher than the nominal interest rate, erode the purchasing power of cash over time. Citi Global Wealth warns that investors sitting on excess cash will likely be left poorer as inflation eats away at the value of their money.
Bonds as an Investment Option
Citi Global Wealth suggests that the recent rise in interest rates is good news for investors with excess cash. U.S. Treasury yields have doubled across all maturities in the past year, making fixed income investments more attractive. Bonds, at today's interest rate levels, have the potential to add both income and diversification to investment portfolios. Citi specifically mentions municipal bonds, U.S. investment-grade bonds, U.S. preferred securities, and select emerging market U.S. dollar-denominated bonds as attractive options.
Unstoppable Trends: Digitalization and the Rise of Asia
Citi Global Wealth identifies "Unstoppable Trends" as powerful multi-year forces that produce lasting change in multiple spheres. Two key trends mentioned in the article are digitalization and the rise of Asia.
The digital revolution is reshaping the world, and Citi sees a compelling long-term case for investments in digital disruptors. Despite the struggles faced by growth-oriented investments in 2022, Citi believes that investors should embrace the disruptive process and seek exposure to digital disruptors in their portfolios. Citi specifically mentions cyber security, including cloud, identity, and data security, as well as leaders in the payments sub-sector as potential areas of investment.
The rise of Asia is another trend that Citi seeks exposure to. The ongoing shift in economic power from West to East, particularly the rivalry between the United States and China, presents investment opportunities. Citi believes that regional players in Asia stand to benefit from this rivalry and the increasing influence of China in its home region and beyond.
In conclusion, the article from Citi Global Wealth Investments provides insights into the challenges and opportunities facing investors in the current economic and geopolitical landscape. It emphasizes the impact of inflation on consumer prices, the importance of considering investment options beyond cash holdings, and the potential of digitalization and the rise of Asia as long-term investment trends. By understanding these concepts, investors can make informed decisions to navigate the complexities of the global economy.
Please note that the information provided is based on the article you shared and my expertise in the field of finance and wealth management.
