2019 Annual Outlook Volatility & Opportunities in the Late Stage Bull Market

Transcription

1 2019 Annual Outlook Volatility & Opportunities in the Late Stage Bull Market Asia Pacific Wealth Management December 2018 INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE

2 Market Performance Market Performance EQUITIES 1Q17 2Q17 3Q17 4Q Q18 2Q18 3Q18 4Q YTD Global Equities 6.5% 4.2% 5.0% 5.6% 23.1% -1.1% 1.9% 5.1% -13.3% -8.2% 7.8% US 6.1% 3.1% 4.5% 6.6% 21.8% -0.8% 3.4% 7.7% -13.5% -4.4% 8.0% Europe 6.3% 1.2% 2.8% 0.6% 11.2% -4.0% 4.3% 1.3% -11.5% -10.3% 6.4% Asia 13.4% 8.4% 6.7% 8.1% 41.8% 0.6% -5.4% -1.5% -8.8% -14.4% 7.3% Japan -0.4% 6.1% 2.2% 12.0% 21.3% -5.0% 4.1% 9.0% -16.9% -10.4% 3.8% EM 11.5% 6.3% 8.0% 7.3% 37.5% 1.4% -7.9% -1.0% -7.6% -14.5% 8.8% BONDS Global IG Bonds 1.3% 3.2% 1.8% 0.7% 7.1% 1.2% -2.7% -0.9% 1.1% -1.3% 0.9% Global HY Bonds 2.4% 2.0% 1.8% 0.5% 7.0% -0.7% 1.1% 2.4% -4.7% -2.1% 4.2% EM Sovereigns 4.1% 2.4% 2.5% 0.6% 9.7% -2.1% -3.6% 2.3% -0.7% -4.1% 2.8% COMMODITIES Gold 8.9% -0.6% 3.1% 1.8% 13.5% 1.7% -5.5% -4.9% 7.7% -1.6% 3.0% Oil (Brent) -7.0% -9.3% 20.1% 16.2% 17.7% 5.1% 13.0% 4.1% -35.0% -19.5% 15.0% CURRENCIES Dollar Index -1.8% -4.7% -2.7% -1.0% -9.9% -2.3% 5.0% 0.7% 1.1% 4.4% -0.6% Source: Bloomberg as of 31 January Returns for Europe and Japan are in local currency. 2

3 Global Growth Remains Supported Global Real GDP Growth (%YY) Global, DM, EM - Manufacturing PMI (Index), Source: Citi Research. As of 26 October Source: Citi Research. As of 24 October

4 Earnings Growth Steady 2018E EPS Growth By Region Consensus forecast global corporate earnings to grow 7% in Lower levels of growth next year are due to tax cut effects fading in the US. Source: Citi Research. As of 3 October

5 Valuations: Below Historical Average MSCI AC World Trailing PE The MSCI AC World benchmark now trades on a trailing PE of 15x, after derating 27% in That is back below the long-run median of 17x. Source: Citi Research. As of 3 January

6 Central banks are tightening Central Banks Net Asset Purchases are Falling Sharply Monetary policy divergence looks to continue. The Federal Reserve embarked on the normalization path earlier than the ECB or BOJ. Central bank net asset purchases are falling sharply. They are likely to be around zero by end-2018, down from $180bn/month in mid Source: Citi Research. As of 24 October

7 Political risks remain elevated UK: Brexit transition deal US: Trade Tensions Europe: Italian budget woes North Korea: Geopolitical tensions China: Trade Tensions, Policy uncertainty post 19 th People s Congress Middle East: Tensions between Turkey and Iraq, Iran and Saudi Arabia, in Egypt, Syria or around Israel could escalate 7

8 Are trade tensions priced in? US Policy Uncertainty: Trade, Non-Trade Unlike Jan/Feb 2018 correction period, trade tensions unlikely to be a new surprise. Citi expects some retaliation from US trading partners, this is unlikely to escalate into a fullblown trade war. Source: Citi Private Bank. As of 18 October

9 Commodities: Oil Supply Risks Loom Global observable oil stocks (bln bbls) Citi analysts maintain an average oil price forecast of US$57/barrel for Brent and US$49/barrel for WTI in Downside risks however include slowing oil demand growth on concerns over economic growth globally, in EMs, and particularly in China, as well as decelerating demand caused by USD appreciation. Source: Citi Research. As of 21 November

10 1. Embracing Uncertainties Global Markets Weaken Together across Geographies, But Only Over Short- Term Periods History suggests that global markets weaken together across geographies, but only over shortterm periods. By having a well diversified, portfolio, investors can still reap the benefits of diversification. Source: Citi Private Bank. As of 11 October

11 2. Benefit From Growth Expansion: Asia Exports account for a shrinking share of Asian economies, while consumption share is growing Asia is less dependent on outbound trade, and more driven by domestic consumption. EM Asian exports amounted to 32% of GDP in This ratio rose to a peak of 41% in 2006, but has since fallen to 24% in Source: Citi Private Bank. As of 19 October

12 2. Benefit From Growth Expansion: Europe Euro area composite PMIs Euro area PMI s have softened since the beginning of the year, but still showing expansion. Attractive valuations: On a priceto-book basis, Europe is 47% cheaper than the US, which is a historically low level. Source: Citi Private Bank. As of 9 October

13 3. Seek Shelter with Income Developed Market Sovereigns Short-term IG yields highest since 2009 US Investment Grade Bonds: Yields have now reached 3.3% (highest since 2009), as the Fed continues to hike policy rates. EMD: In Asia, Citi analysts continue to favor China. In external markets, we are seeing improved liquidity in the property sector, which has been under pressure this year. Opportunities can still be found in the core Source: Citi Research. As of 5 November state-owned enterprises and select developers. 13

14 4. USD Strength Unlikely to Last US Dollar Index vs Long positioning A deterioration in the US s twin deficits (fiscal and current) could result in USD weakness. With investors currently positioned for much higher Fed rates and a stronger USD, a shift to a more cautious Fed stance could also negatively impact USD. 14 Source: Citi Research. As of 17 October Commodity currencies are likely to be supported as they enjoy a healthy terms of trade balance even against the backdrop of heightened trade tensions.

15 Key Takeaways Themes Embracing Uncertainties Multi-asset Strategies Long/Short + Alternatives Benefit from Growth Expansion Global Equities Asian Equities European Equities Seek Shelter with Income US Investment Grade Emerging Market Debt USD Strength Unlikely to Last Commodity currencies may benefit 15

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