Weekly Investment Insight

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1 *INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE Citibank Wealth Management Dec 11, 2017 with data as of Dec 8 Weekly Market Review Citi analysts forecasts Market Overview 02 Equity 03 Bond & Commodities 04 Weekly Commentary Hong Kong Stocks Update & Sector Outlook Equity Index 07 Commodities 08 Foreign Exchange 09

2 Market Review Forecasts Weekly Market Review Market Overview Chart 1: Weekly Performance S&P 500 Index Nikkei 225 Hang Seng Index HSCEI Shanghai Comp. STOXX Europe 600 US Gov't Bond Index ^ World IG Corp Bond Index ^ EM Gov't Bond Index ^ US HY Bond Index ^ US Dollar Index COMEX Gold Futures WTI Crude Oil Futures Source: Bloomberg L.P., as of Dec 8, 2017 ^Reference Indices: Citigroup Bond Indices Series Market Overview 0.0% -1.5% -1.4% -0.8% -2.6% -1.7% -0.1% 0.0% 0.4% 1.4% 0.2% 0.0% 1.1% HK equities saw profit taking and posted their second consecutive weekly loss, following the strong rally YTD. Passage of US tax cuts this year has become very likely. Interest rates and equity prices were little changed on the week, but the US dollar appreciated significantly. Key Economic Releases / Events over the Week US Tax Reform After the Senate passed it tax reform bill, we now see 90% odds of a final bill be signed into law by President Trump by year-end (original forecast: 65%). We anticipate US economic growth will accelerate to 2.7% in 2018 and 2.4% 2019 due to stimulus from tax cuts and immediate expensing of capital investment, as well as from hurricane-related government spending. US Non-farm payroll The US economy added 228K jobs in Nov (consensus: 195K). The major surprise was weaker-than-expected wage growth of just 0.2% MoM and 2.5% relative to median forecasts of 0.3% and 2.7%. Citi s view: 228K new jobs but just 2.5% YoY wage growth in November reinforces soft inflation despite solid growth. A rate hike at this week s FOMC meeting is widely anticipated. We expect median dots will continue to indicate three rate hikes in

3 Potential Beneficiaries of US Tax Reform Beneficiary - US Small Cap Revenue source by region for US listed companies Source: FactSet as of 30 Sep, 2016 Small cap has been starved for earnings growth through much of this cycle, as EPS growth peaked in mid Tax reform and other fiscal stimulus were positive for small cap and were best viewed as cycle extenders. Tax Reform - Potential Impact At a price tag in the neighborhood of $1.5 trillion over ten years, we believe tax reform would provide some late-cycle stimulus to the US and global economies. US corporate earnings: A 20% statutory tax rate for corporations (all things being equal) could add another $9-$10 to S&P 500 EPS estimates on top of our $141 forecast. US stock market: Tax-related incremental earnings would add 100 points to our current 2,675 target for December next year.

4 Beneficiary - US stocks with higher domestic exposure Retailing, Financials, Healthcare, Telecom Services and Utilities are among the sectors that have highest exposure in the US (>80% of revenue) Beneficiary - US Pharmaceuticals and Chemicals The bill is a net positive for those US-based multinationals, particularly those with accumulated offshore earnings that will be deemed repatriated upon implementation of US corporate tax reform Some US Chemicals companies have more than 75% of its cash and equivalents held abroad. US Pharmaceuticals Large Caps also saw accumulated offshore earnings. Beneficiary - European stocks We remain bullish on European equities and expect 10-15% EPS growth in Collectively, lower US corporate taxes imply 0-6% upside for European EPS. Source: Citi, as of Nov 29, 2017 Source: Citi, as of Nov 21, 2016

5 Chart 3: Weekly Equity Market Performance Chart 4: Weekly Bond and Commodities Performance Market Review Forecasts Equity 8-Dec Close Weekly Change Change (%) Weekly 1-Month 3-Month 6-Month YTD Global / US MSCI AC World Index (Local) % 0.4% 6.4% 7.3% 16.4% S&P 500 Index 2, % 2.2% 7.7% 8.9% 18.4% DJ Industrial Average 24, % 3.2% 11.6% 14.9% 23.1% Russell 2000 Index 1, % 2.7% 8.7% 7.5% 12.1% Europe STOXX Europe % -1.3% 3.7% 0.0% 7.7% FTSE 100 Index 7, % -1.8% 0.2% -0.8% 3.5% DAX Index 13, % -1.7% 6.9% 3.5% 14.6% CAC 40 Index 5, % -1.3% 5.6% 2.6% 11.0% Japan Topix 1, % -0.8% 13.2% 13.4% 18.8% Nikkei , % -0.4% 18.3% 14.6% 19.3% Emerging Market MSCI EM Index 1, % -2.1% 1.8% 9.0% 28.8% Asia MSCI Asia ex Japan % -1.8% 4.1% 9.6% 34.3% Shanghai Composite 3, % -3.7% -2.2% 4.4% 6.0% CSI 300 4, % -1.1% 4.6% 12.4% 20.9% Hang Seng Index 28, % -0.9% 3.5% 9.9% 30.2% HS China Enterprise Index 11, % -2.5% 1.3% 6.0% 20.2% MSCI China Index % -2.4% 5.7% 16.5% 47.6% S&P/ASX 200 5, % -0.4% 5.7% 5.6% 5.8% Taiwan TAIEX Index 10, % -3.9% -2.0% 1.7% 12.4% Kospi Index 2, % -3.5% 5.1% 4.2% 21.6% BSE Sensex 30 Index 33, % 0.1% 4.9% 6.5% 24.9% Jakarta Composite Index 6, % -0.3% 3.0% 5.8% 13.9% Straits Times Index 3, % 0.1% 6.1% 5.8% 18.9% FTSE Bursa Malaysia KLCI 1, % -1.3% -3.3% -3.6% 4.8% SET Index 1, % -0.5% 4.3% 8.7% 10.6% Latin America Brazil Ibovespa Index 72, % -2.2% -0.5% 15.9% 20.8% Mexico IPC Index 47, % -2.6% -5.0% -3.1% 4.2% Emerging Europe Russia RTS Index $ 1, % -2.7% 0.0% 7.8% -2.8% Fixed Income Bond Indices 8-Dec Close Weekly Weekly 1-Month 3-Month 6-Month Change YTD Citigroup US Gov't Bond Index % -0.2% -1.2% 0.2% 2.2% Citigroup WBIG - Corporate Index % 0.0% 0.3% 1.7% 4.7% Citigroup High Yield Market Index % 0.4% 1.0% 2.2% 6.8% JPM HY Bond Spread-to-Worst Glbl % -1.0% -9.4% -9.4% -16.0% US Treasury Yields 3-Month - Yield (%) Year - Yield (%) Year - Yield (%) Year - Yield (%) Year - Yield (%) Change (%) Commodity Energy 8-Dec Weekly Weekly 1-Month 3-Month 6-Month Close Change YTD WTI Crude Futures ($/barrel) % 1.0% 20.8% 25.7% 6.8% Brent Crude Futures ($/barrel) % -0.1% 17.9% 32.5% 11.6% Natural Gas Futures (MMBtu) % -12.7% -4.1% -8.5% -25.6% Base Metals LME Aluminum Futures ($/MT) % -4.7% -4.2% 5.7% 18.8% LME Copper Futures ($/MT) % -4.1% -1.8% 14.7% 18.7% Precious Metals Change (%) Change in Yield (in bps) Comex Gold Futures ($/oz.) % -2.7% -7.3% -2.4% 8.4% Comex Silver Futures ($/oz.) % -7.7% -12.7% -9.1% -1.0% Source: Bloomberg L.P., as of Dec 8,

6 Market Review Forecasts HK Stocks Update Chart 5: Top/Bottom Five HSI Constituents TENCENT PING AN WHARF HLDG HENGAN INTL WH GROUP LTD Top 5 performers 2.34% 3.84% 3.92% 5.00% 7.03% Source: Bloomberg L.P., as of Dec 8, 2017 Sunny Optical Technology Group slid 12.1%, the worst performer on the index. The Apple supplier was admitted to the Hang Seng Index on Monday. SUNNY OPTICAL % CHINA UNICOM GEELY AUTOMOBILE HENDERSON LAND D Bottom 5 Performers SINO LAND Heavyweight stock Tencent Holdings, jumped 4.2% on Friday to erase losses recorded earlier in the week. Also wiping out declines from earlier in the week, Ping An Insurance Group climbed 4.9% on Friday % -6.55% -4.55% -4.54% Remain Bullish on China Equities Premium market in the making China s time-tested resilience deserves a premium. It is well positioned to capture the growth opportunities ahead. A more stable and sustainable economy Citi estimates that new economy now accounts for 21% of China s GDP and makes up ~45% of China s equity market cap. We expect the new economy to increasingly serve as a growth stabilizer for China. Consolidation has been a trend, especially among old economy sectors. Industry leaders are set to benefit, with rising market shares and profitability. The government s long-term housing mechanism should help smooth out volatility in the property market. Strong earnings growth ahead Citi expects MSCI China to deliver high-teen EPS growth in 2018/2019, and ROE is likely to improve from 15.3% in 2017 to 16.1%/16.4% in 2018/19. Upward earnings revisions continue, and cross-border trade flows have become an increasingly important market driver. Citi sets the end-2018 MSCI China target at 110, implying ~20% upside. Overweight IT, Consumer Discretionary, Healthcare and Property and underweight Consumer Staples, Telecom and Utilities. 6

7 Market Review Forecasts Citi analysts Forecasts: Global Equity Index Forecasts (Remarks: Forecasts as of Dec 8, 2017) Citi forecasts Valuation Past Performance 8-Dec END-2018 Expected Forecast P/E ratio Forecast P/B ratio Region / Index 1-Week 3-Month YTD Close Change Global MSCI AC World Index (Local) 0.5% 6.4% 16.4% % MSCI EM Index -0.5% 1.8% 28.8% 1,111 1, % US S&P 500 Index 0.4% 7.7% 18.4% 2,652 2, % DJ Industrial Average 0.4% 11.6% 23.1% 24, Russell 2000 Index -1.0% 8.7% 12.1% 1, Europe STOXX Europe % 3.7% 7.7% % FTSE 100 Index 1.3% 0.2% 3.5% 7,394 8, % DAX Index 2.3% 6.9% 14.6% 13, CAC 40 Index 1.5% 5.6% 11.0% 5, Japan Topix 0.4% 13.2% 18.8% 1,804 1, % Nikkei % 18.3% 19.3% 22, Asia MSCI Asia ex Japan -0.4% 4.1% 34.3% % Shanghai Composite -0.8% -2.2% 6.0% 3, CSI % 4.6% 20.9% 4,003 5, % Hang Seng Index -1.5% 3.5% 30.2% 28,640 29, % HS China Enterprise Index -1.4% 1.3% 20.2% 11,290 13, % MSCI China -0.3% 5.7% 47.6% % S&P/ASX % 5.7% 5.8% 5, Taiwan TAIEX Index -1.9% -2.0% 12.4% 10, Kospi Index -0.5% 5.1% 21.6% 2, BSE Sensex 30 Index 1.3% 4.9% 24.9% 33, Jakarta Composite Index 1.3% 3.0% 13.9% 6, Straits Times Index -0.7% 6.1% 18.9% 3, FTSE Bursa Malaysia KLCI 0.2% -3.3% 4.8% 1, SET Index 0.4% 4.3% 10.6% 1, Latin America Brazil Ibovespa Index 0.6% -0.5% 20.8% 72, Mexico IPC Index 0.7% -5.0% 4.2% 47, Emerging Europe Russia RTS Index $ -1.2% 0.0% -2.8% 1, Source: Bloomberg L.P. and Citi Forecasts, performance and market data as of Dec 8,

8 Important Disclosure Citi analysts refers to investment professionals within Citi Research (CR) and Citi Global Markets (CGM) and voting members of the Global Investment Committee of Global Wealth Management. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. Investment products are not available to US persons and not all products and services are provided by all affiliates or are available at all locations. This document is for general informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security, currency, investment, service or to attract any funds or deposits. Save to the extent provided otherwise in the Terms and Conditions for Accounts and Services or other applicable terms and conditions, information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Therefore, investment products mentioned in this document may not be suitable for all investors. Any person considering an investment should seek independent advice on the suitability or otherwise of a particular investment. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor s own particular circumstances, that the investment is consistent with the investor s investment objectives In any event, past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors. Further, any projections of potential risk or return are illustrative and should not be taken as limitations of the maximum possible loss or gain. Investments are not deposits or other obligations of, guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Neither Citigroup nor its affiliates can accept responsibility for the tax treatment of any investment product, whether or not the investment is purchased by a trust or company administered by an affiliate of Citigroup. Citigroup assumes that, before making any commitment to invest, the investor and (where applicable, its beneficial owners) have taken whatever tax, legal or other advice the investor/beneficial owners consider necessary and have arranged to account for any tax lawfully due on the income or gains arising from any investment product provided by Citigroup. If an investor changes country of residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable Citibank Citi and Citibank and Arc Design are registered service marks of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited

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10 Important Disclosure on High Yield Bonds Unrated or non investment grade Debt Securities typically offer a higher yield than investment grade Debt Securities, but also present greater risks with respect to liquidity, volatility, and non-payment of principal and interest. As a result of being classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to many other fixed income Debt Securities. Higher Credit Risk Unrated or non investment grade Debt Securities generally have predominantly speculative characteristics with respect to the issuer s capacity to pay interest and repay principal. There is greater risk of non-payment of interest and loss of principal. Many issuers of these Debt Securities have experienced substantial difficulties in servicing their debt obligations, which has led to default and restructurings. The issuers of these Debt Securities generally have to pay a higher rate of interest than investment grade Debt Securities. Higher Liquidity and Secondary Market Risk The markets in which unrated or non investment grade Debt Securities are traded are generally more limited than those in which investment grade Debt Securities are traded. This lack of liquidity may make it more difficult to resell these Debt Securities and obtain market quotations. Downgrade Risk Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in the unrated or non investment grade Debt Securities market may anticipate such downgrades as a result of these credits being placed on credit watch by rating agencies, causing volatility and speculation of further credit deterioration. Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may reevaluate holdings in lower-quality bonds in favor of investment-grade corporate Debt Securities; ii) investors become more risk averse; and iii) default risk rises. This is often referred to a flight to quality. Event Risk This includes any of a variety of events that can adversely affect the issuer of unrated or non investment grade Debt Securities, and therefore the issuer s ability to meet debt service obligations to repay principal and interest to Debt Securities holders. Event risk may pertain to the issuer specifically, the industry or business sector of the issuer, or generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts Citibank Citi and Citibank and Arc Design are registered service marks of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited

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