According to the firm, 2023 is likely to see a shallow US recession, while some other places such as the eurozone will be more heavily impacted.

By contrast, there will be a recovery in Chinese growth, as pandemic restrictions are relaxed, Citi continued. 

As unemployment rises, it expects the Fed to reverse course by the second half of 2023, with fixed income yields dropping

US inflation will continue to ease, ending 2023 at around 3.5 per cent and the US Federal Reserve will start cutting interest rates by the second half of the year, the firm predicts. There will also be a 10 per cent drop in global earnings per share.

CGWI said that just as 2022’s global market turmoil reflected these forecast conditions for the year ahead, investors are likely to start focusing on 2024’s recovery during 2023. 

With the current equity bear market probably incomplete, Citi said that it is entering the year positioned defensively, but expects to pivot as the year progresses.

Opportunities
In the near term, CGWI favors quality, such as short-term US dollar investment grade fixed income.

Likewise, it prefers more defensive equities, including dividend growers. For suitable investors, capital markets and alternative strategies also offer potential opportunities to put cash to work.

It favors technology-focused strategies from venture capital, growth, buyout and private debt managers.

As interest rates peak, the firm also expects to shift first to quality, growth equities in non-cyclical industries and cyclicals later on.

Once the dollar strength reverses, it sees deep value potential in various non-US assets and currencies, such as income-producing real estate.

It said that many investors are sitting on excess cash in their portfolios this year, but believes that history suggests that this is likely to prove a costly mistake over time. Its investment philosophy calls for fully invested, globally diversified portfolios throughout economic cycles.

The firm’s strategic asset allocation methodology points to 10-year annualized returns of 10 per cent for global equities, 5.1 per cent for global fixed income and 3.4 per cent for cash. Its methodology predicts higher returns over the decade

CGWI also continues to favor exposure to the drivers of long-term economic growth.