Steven Wieting, global chief investment strategist, Citi Private Bank
Wieting took on the role in May 2013 and was formerly a director and US economist in Citi Research. He joined Smith Barney in 1996 and became lead economist for Citigroup’s US institutional equities business in 2000.
Emerging and developing regions of the world should maintain the fastest growth rates. However, in many cases, those rates are decelerating. We expect China to grow 7.3%, down from 7.6% in 2013. We don’t assume that the fastest GDP growth rates necessarily offer the highest returns on investment, and we expect more measured growth in China to be more profitable for many firms than in the past.
The US and the UK should easily be the fastest-growing large developed economies. The 1.3 percentage point acceleration in the eurozone’s growth rate we expect in 2014 could still be a very meaningful positive surprise to investors.
What advice are you giving clients on their fixed-income allocation?
Standard fixed-income markets should remain challenging in 2014 and we remain underweight. We still favour high-yield debt overall, but particularly in Europe. US municipals with duration risk hedges seem reasonably priced for a higher interest rate environment and tax-advantaged investors, but only for those willing to hold until maturity. For hold-to-maturity investors, off-the-run bonds generally and some structured vehicles offer a good tradeoff for higher yield in return for reduced liquidity.
To what extent will absolute-return investments have a place in a client portfolio next year?
Absolute-return strategies helped fixed-income investors cope with a rising rate environment in 2013 and we expect this to be so in 2014 as well. With the US stock market no longer depressed, we see increasing opportunity in long/short equities and fixed-income structures that can take advantage of rising rates.
What regional opportunities do you foresee this year?
We expect Europe’s financial markets to follow the US recovery. The extra growth in emerging markets of the past decade will be downshifted or sourced from elsewhere. The development of the EM consumer is a long continuous process, but for a tactical one-year to two-year window, we see north Asia’s markets as the relative winners, with low market valuations and a decent exposure to the strengthening recoveries in developed markets.
How long do you foresee the window of opportunity lasting?
We expect US unemployment to fall below the present 7%, with above-trend growth sustained for two to four years. But since 2007, the labour force aged 25 to 54 has fallen by just under 4 million and roughly half of those are males aged 25 to 44. If the economic recovery incentivizes a rebound in the labour force, the US and global recovery could be an unusually long one. But we can’t just assume it. Such notions require continuous monitoring.