Investment strategy
October 27, 2021
2 mins

Difficult winter ahead but market recovery expected in 2022

October 27, 2021
2 mins
Jeffrey Sacks
Head of EMEA Investment Strategy
Maya Issa
Global Investment Strategy
SUMMARY

European markets are likely to face a difficult winter on rising costs of living, company labour and material shortages, and exposure to the slowing Chinese recovery. However, Citi Private Bank believes a recovery is on the horizon.


  • We’ve reduced European ex-UK equities to neutral and UK equities overweighting has been slightly reduced. However, on a 12-to-18-month horizon, the markets should be supported by ongoing earnings growth, above-average dividend yields, and undemanding valuation multiples.
  • The region has high exposure to quality companies with strong balance sheets, value in sectors like financials, defensive exposure in sectors like healthcare, and rising alternative energy investment opportunities.
  • Underweight fixed income. Sovereign bonds remain expensive, even after the recent backup in yields. The coming months will see further price pressures, driven by rising inflation and rising tapering expectations. We see selective opportunities in EU green bonds and in corporate high yield bonds.
  • Sterling and the euro are unlikely to sustain rallies. Positioning in both currencies is not over-extended and next year could benefit from the resumption of inflows into the region. However, in the short-term the current support levels are vulnerable.
  • The UK budget on Wednesday (October 27) aimed to re-establish sound public finances even while supporting the growth upturn and jobs recovery.
  • The German coalition-building process is expected to lead to a coalition led by the SDP, with a smooth transition and policies that are not likely to be radical changes.

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