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Investment Management Strategies for a High Growth, Higher Inflation World

26 February 2018Equities
Investment Management - Citibank UK

Analysts at Citibank UK predict high growth and high inflation post Trump's signing of the US Budget Deal. Head on to Citibank UK's Market Insights to find out the right investment strategies and investment management techniques for 2018 - 2019 to deal with these changes. Click to explore our investment ideas.

The unexpected stimulus from the recent US budget deal has led Citi to raise its US real GDP growth forecast for 2019 from 2.4% to 2.8%. Citi analysts now see stronger growth, a lower unemployment rate and at or slightly above target inflation in 2019.

  • According to Citi analysts, a high growth and higher inflation environment results in lower but still positive returns from bonds and equities, higher market volatility, a weaker dollar and stronger commodities. See table.

    Investment Strategies for a High Growth, Higher Inflation World - Citibank UK

  • As such, investors may want to stay invested but expect returns to be more modest, especially when compared to last year's gains. Citi analysts continue to expect robust global real GDP growth of 3.4% in 2018 and have just raised their 2019 global GDP growth forecast up 0.1% to 3.4%. This is expected to help drive corporate profits over the next 1-2 years.

  • Investors may also want to consider gaining exposure to strategies that are positioned for rising volatility. Macro trading strategies may also perform well.

  • A weaker dollar is potentially positive for Emerging Market (EM) assets. EM is expected to benefit from robust global trade, synchronized growth as well as supportive commodity markets. Citi analysts are positive on EM equities as well as bonds (local currency and USD denominated)./p>

  • Within EM bonds, Citi analysts favour Latin America bonds given higher commodity prices, stronger growth, favorable currencies and higher yields, although upcoming elections in Brazil and Mexico may lift volatility. Over in India, despite the challenges from higher inflation and a widening fiscal deficit, Citi analysts believe that 5-year Indian local currency yields at 7.5% are attractive. Citi also sees long term potential in local Chinese bonds as the onshore bond market becomes more accessible to foreign investors.

  • Investors can also consider gaining some exposure to commodities, in particularly industrial metals. Metals have historically performed well in a rising growth and inflation environment.

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