Citi Global Wealth this week released its report entitled “Wealth Outlook for 2024 - Slow then grow: Investing in the markets’ big reset,” analysing the global economy, markets and geopolitics for the year ahead. 

Though the US economy is likely to slow in early 2024, Citi Global Wealth thinks that markets will focus on faster growth in the second half of 2024 and into 2025.

The firm predicts that global GDP growth will slow to +2.2 per cent in 2024 and strengthen to +2.8 per cent in 2025. Citigroup's wealth arm expects the US to lead the world in this “slow then grow” pattern, and predicts US inflation to dip to 2.5 per cent by the end of 2024. 

The growth will be reflected in corporate earnings in 2024 (+4 per cent) and 2025 (+8 per cent) and will benefit the broader stock market, the firm said. 

Citi Global Wealth is also forecasting a low likelihood of a recession in 2024 and predicts that “rolling recessions” in certain industries and sectors will fade in 2024 as markets for goods and services normalise.  Nevertheless, RaphaĂ«l Gallardo, chief economist at Paris-based asset manager Carmignac, thinks that developed economies are heading for a recession in 2024. Gallardo believes that developed economies should stay on a “slow landing” trajectory in the first half of 2024, followed by a recession in the second half, led by the US. China should escape a recession. See more here.  

David Bailin, chief investment officer at Citi Global Wealth, thinks that markets lead economies. “The ‘big reset’ reflects our view that we believe higher strategic returns will be available over the decade and, for many investors, may prove to be a time when fully invested, diversified core portfolios can capture market results across equities and bonds,” he said. 

The “big reset” will occur in a synchronous manner in both equity and bond markets. Investors should avoid sitting on the sidelines waiting for a signal to re-invest which is unlikely to occur.

The US bank is joined by a raft of other firms attempting to peer into 2024 to work out the most suitable asset allocation stance to take.

60/40

Bailin thinks that in 2024, 60:40 portfolios stand to do well, with 60 per cent of assets in equities and the other 40 per cent in bonds. “Both stocks and bonds are very attractively priced,” he added at a media briefing. The firm said it has increased its global equities weighting from neutral to overweight for the first time since 2020.

The setup for alternative assets is also promising, adding to the firm’s positivity about the opportunity set going into 2024.

With the US Federal Reserve perhaps having finished hiking interest rates, Citi Global Wealth also suggests locking in potentially higher yields on bonds now. With bond yields materially higher than they were just two years ago, intermediate bonds may add more value to portfolios than cash over the years to come. Potential opportunities include intermediate-maturity of US Treasuries, investment grade credit and municipal bonds. The Federal Reserve will probably lower short-term interest rates as inflation eases to prevent a higher unemployment rate. Other wealth managers also favour bonds in 2024.  See more here.

“We believe in balanced, “core” portfolios,” Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth, continued.

“We have also outlined some opportunistic strategies that include undervalued assets and areas where a catalyst for growth or change in market conditions exist. These include investments related to our long-term unstoppable trends, including longevity and the impact of artificial intelligence,” Wieting added. 

Citigroup also believes that a weaker US dollar will help Europe and Asia to grow after the slow down. It thinks that the immediate stimulus measures undertaken by the Chinese government in recent months have been significant, probably enough to engender a cyclical recovery in 2024 and into 2025. The latest data suggest that it has already started. The main risks are further supply shocks or deeper weakening in China. Elections, geopolitics may also cause investor anxiety without changing markets’ course, the firm added.

The outlook includes Citi Global Wealth’s top 10 opportunistic investment ideas: semiconductor equipment makers, cybersecurity shares, Western energy producers, equipment and distributors, copper miner equity/clean energy infrastructure, medical technology and tools' companies, defence contractors, private capital asset management firms, the Japanese yen and yen-denominated tech and financials, private credit and structured debt securities, and normalisation of the US yield curve.