Our Mid-Year Outlook Report
After a strong rebound that saw Global equities gaining 16.7% in the first 4 months of 2019, we are now entering seasonlly weaker summer months. This weakness is further amplified by US-China trade risks dominating global market concerns. Citi analysts see markets as unprepared for the heightened risk of a prolonged economic struggle that could extend beyond the two economics and as a result, a period of de-risking within equities should be expected.
Divergence in Global Growth
Global growth projections have stabilized at about the long-term average of 3%. However, this projection masks divergence between countries (slowing Developed Markets and recovering Emerging Markets).
Exploiting Late Cycle Opportunities
Financial markets weakened over the course of May as investors came to see a lower probability of a quick resolution of trade disputes. In light of trade fears revival, Citi analysts have scaled back on risk allocations by tactically reducing global equities to underweight.
Protect the Downside
Amid a revival of trade fears, Citi’s overweight stance on fixed-income quality may help navigate more volatile mid-year markets and potentially strengthening risk-adjusted returns.
Pockets of Opportunities
Citi analysts believe that oil can outperform other commodities even if trade tensions were to escalate. This is because supply-side factors can be far more influential than demand changes.
Uncertainty could see Safe haven Currencies in Vogue
The extension of the US-China trade dispute together with other unresolved geopolitical concerns – Brexit, a potentially more populist European parliament and US-EU/ Japan trade tensions risk posing headwinds to the 2H19 outlook. This is likely to support safe haven currencies.
Risks Remain Elevated
Political and policy uncertainty affecting trade, sanctions and regulation is generating increased levels of investor concern, with impact on the global economy and financial markets.
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