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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

US policy risks for markets

Perspectives

US policy risks for markets

Steven Wieting

By Steven Wieting

Chief Investment Strategist and Chief Economist

January 30, 2017Posted InInvestments, Equities, Fixed Income and Investment Strategy

The Citi Private Bank Global Investment Committee left its asset allocation unchanged today, overweighting US dollar assets while keeping a small tactical overweight in both cash and gold as a risk hedge.

The allocation to global equities remains at -1.0% and fixed income -1.0%. Within this allocation, we maintained a neutral (full) allocation to US equities, an overweight to US credit and to select emerging markets fixed income. We also maintained large underweights in European and Japanese government bonds. In international equities markets, we see currency depreciation hampering potential returns measured in US dollars over the next 12-18 months. This reflects an expected diverging path for US monetary policy vs other central banks and a variety of political risks. (Hedging forex risk remains an option, but with trade-offs that require bespoke solutions).

The 100 basis point rise in long-term US bond yields since October reflects both stronger growth and inflation expectations. Rate pressures are likely to be felt at the shorter-end of the US, yield curve this year. The policy backdrop in the US suggests some rise in interest rate volatility. However, the rise in yields also represents a stronger future return opportunity across the risk spectrum. US high yield debt, variable rate loans and some hybrids offer solid risk-adjusted returns, with the energy sector powering recovery. Municipal debt for US tax payers is again attractively priced. Emerging markets have been set back by prospective US monetary and regulatory policies. However, select Latin American bonds amply compensate investors for risk.

Details on US tax and trade policies are only likely to emerge piecemeal in the coming few months, which could add to global financial market volatility. Heightened growth expectations actually leave greater vulnerability to the equity market sectors that have rallied the most in the past two months. However, underlying US profits were already recovering and tax reforms are likely to boost EPS for the majority of US firms before 2017 ends. The possibility that the US Congress will fund domestic tax cuts with a tax on imports adds several risks to an otherwise strong stimulus effort. During an adjustment period, the policy could hamper trade flows and result in a mix of both US dollar appreciation and higher consumer price inflation. International firms domiciled in every region could be impacted.

International political risks are heightened beyond the US influence this year with several national leadership elections in Europe, Brexit negotiations, and a power transition in China. Given uncertainties over US tax, trade and monetary policies, we remain tactically underweight Euro assets and select Southeast Asian markets. Nonetheless, the GIC may take actions to allocate more or less to risk assets depending on policy developments and valuations in coming months.