Global Asset Allocation
Citi House Views – March 2015
* Asset Allocation & Macro Overview
– Cautious optimism best characterizes investor sentiment in our view. We see few
signs of irrational exuberance. Our cross asset risk aversion indicators are still
quite elevated, whilst individual US investors seem restrained in their allocations
to stocks. We still think equities can rally and bond yields can fall to end-2015.
– We adopt a barbell approach to our medium term asset allocation: overweight
equities and government bonds (upgraded); underweight credit and cash; neutral
commodities (downgraded).
* Citi House Views by Asset Class Specialists
– Equities: We remain constructive on global equities. We think the bull market is
maturing but it is too early to call its end given where we are in the profits cycle.
– Credit: We see further spread tightening in Europe in particular, with HY to
outperform IG. In the US, it’s far more likely that spreads range trade.
– Rates: We forecast divergent yield paths for the major government bond markets
in 2015. European government bonds outperform, USTs underperform.
– Commodities: We expect further price weakness short term, and a recovery
further out. To end-2015, return forecasts are positive.
– Foreign Exchange: USD cycles are normally persistent and last 5-6 years in the
appreciation phase. We see further medium term USD gains.