Published February 7, 2009

Citi analysts' take on 2009

By BRITTANY KHOO

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CITIBANK analysts view 2009 as a year of two halves for financial markets: with the first half characterised by continued volatility and the second half offering opportunities.

Giving their investment outlook for 2009, the analysts said that the near term is likely to see investment returns still being driven by economic contraction, policy easing and de-leveraging. The result is high market volatility. At some point in the year, the extreme valuations seen currently in equity and credit markets should provide attractive opportunities, as downside risks to economic growth dissipate and de-leveraging pressures ease.

While economic growth is likely to remain below trend for now, global equities should find a base in 2009 ahead of expected economic stabilisation. A further boost may come from a pick-up in corporate earnings in 2010 as economic recovery, albeit moderate, takes hold. The Citi analysts believe that the bottoming of equities is likely to be a process. They encourage long-term investors to use the bottoming process to begin a series of rebalancing in portfolios back to their long-term allocations, or enter the accumulation phase for long-term equity exposure.

Citi analysts are keeping their overweight recommendation to stocks over a 12-month period. Regionally, they still favour the US and emerging markets. For bonds, they prefer investment-grade corporate bonds to developed-country sovereign debt. While high yield bonds are enticing, Citi analysts caution against increasing exposure too early.

'Investors can expect significant volatility in the first half (of 2009),' said Salman Haider, Citibank Singapore's managing director and head of wealth management. 'Provided we see economic headwinds receding in the latter half, we could be settling the base for the market to recover.

Citi also recommends that while retail investors structure 55-60 per cent of their portfolios around global equities and fixed income, they could also consider tactical investments in distressed assets and global infrastructure. Mr Haider stressed, however, that these areas would be more for high net worth investors, and advised retail investors to thoroughly understand and figure out how much risk they can take before venturing in.

On the Singapore economy, Citi forecasts an unfavourable outlook as the recession deepens, with overall negative growth of 2.8 per cent for 2009.