In Mind Your Business, we speak with business leaders and thinkers who inspire their respective companies and industries. Here, Roger Bacon, Citi Private Bank’s head of investment advisory, Asia North & Australia and Asia South, outlines why 2024 will be good year for investors
As 2023 came to a close, Citi’s wealth business released its comprehensive Wealth Outlook for 2024 into the world. In essence, the expansive and extensively researched forecast concludes that 2024 will be a year of growth, whose good tidings will positively impact the landscape of global wealth in the years to come. In this exclusive interview, Roger Bacon, head of investment advisory, Asia North & Australia and Asia South for Citi Private Bank, details the finer points of the report and explains why the bank is well-poised to guide investors to more fruitful horizons as the new year unfolds.
You’ve had a long and illustrious career in wealth management. What drew you to the industry and what keeps you so engaged in it?
My desire to work in financial services goes back as far as I can remember. And I joined the industry in 1993, so a long time ago! The first half of my career was on the asset management side. For the last 16 years, I’ve been in private banking. I see the two as intertwined and I’ve found both hugely fulfilling.
During my career, I’ve looked after institutions, endowments, ultra-high- and high-net-worth individuals, the mass-affluent and other retail clients. So, you could say I’ve covered the whole spectrum of clients globally. Whatever their level of wealth, I’ve loved working closely with them. Talking with clients about investments is a longstanding passion of mine.
Please give us some background on Citi’s wealth business.
In 2021, Citi announced the formation of a single wealth organisation, embracing private banking and all its consumer wealth businesses. Our mission is to deliver all clients the best of Citi, including our global reach, technology and connections to other parts of the bank, such as our institutional resources for those individuals who own significant businesses.
Asia is absolutely critical to our mission in wealth. Singapore and Hong Kong represent two of our four global hubs.
In Citi Wealth’s view, what might 2024 hold in store for Asia?
We expect faster growth for Asia in 2024 as key macroeconomic headwinds abate. If the US Federal Reserve shifts into easing mode, lower rates and a weaker dollar would likely be helpful for the region’s emerging markets. Asian inflation is already moderating, with price growth in most places well below 2022 peaks. And there’s flexibility for monetary easing regionally if growth underwhelms.
China is still the global and regional wildcard for 2024 after failing to sustain its post-COVID economic spurt in 2023. But we see several constructive developments in the region’s other major markets that could bear fruit in 2024 and beyond, in Japan, India and various Southeast Asian economies.
From a wealth management perspective, we believe Asia’s outlook is exciting and will remain so for many years to come. Wealthy individuals and their families have emerged from the COVID period in good financial shape. Asian wealth continues to grow more rapidly than wealth in any other region of the world, creating further demand for services such as investment, banking, lending and wealth planning. So our priority is to be on hand for our clients, connecting them to the insights and resources they need to preserve and grow their wealth for themselves and future generations.
In your Wealth Outlook 2024 report, it says the likelihood of a recession this year is low. Why is that?
Quite a few commentators seem to expect a synchronised downturn in global growth in 2024. We disagree with this. Instead, we look for a slowdown in the first part of the year. Later in 2024, though, we forecast a pick-up, with the expansion strengthening further in 2025. The name we’ve given this pattern is ‘slow then grow’. The US—the world’s largest economy—will continue to show resilience, in our view. The potential for an interest rate cutting cycle to begin should be helpful.
That said, there are risks to our positive outlook. Geopolitical shocks are among the forces that could derail the economy and markets. Major disruption to energy supplies and cyberwarfare are two possible examples of these. However, we believe that investors can build portfolios to prepare for such scenarios, rather than just holding excess cash.
So, how is Citi Wealth positioning portfolios amid this ‘slow then grow’ environment?
Put simply, we think this is a good time to be an investor.
In 2024, we think financial markets will increasingly focus on the strengthening growth we’re expecting in 2025. We see earnings per share globally rising in both years. Against this backdrop, we’ve already raised our global equity allocation from neutral to slightly overweight. We see positive performance broadening out, after gains led by US mega-cap tech shares in 2023. We’re attracted to the likes of profitable US small- and mid-cap growth equities, which we see as undervalued.
In fixed income, we see various potential opportunities. Historically, US Treasuries have often seen strong performance in the two years after the Fed stops raising rates. We believe we may have entered such a period. We are therefore encouraging clients to consider shifting away from cash deposits and into the likes of US dollar-denominated high quality bonds of intermediate duration, locking in today’s higher yields.
But this isn’t just about 2024 and 2025. We think there’s a longer-term good news story across asset classes.
And what is that longer-term outlook for asset classes, in your view?
Based on today’s long-term valuations, we believe asset class returns over the coming decade are likely to be robust. Take global equities, for example, where we think annualised returns could come in at 8.7 per cent over the next 10 years. Fixed income is at 5.8 per cent and we have double-digit return estimates for private equity, real estate and hedge funds. This is the first time in some years that valuations have pointed to such strong returns across many asset classes. Our view is that these valuations are likely to undergo a positive ‘big reset’, helping to drive returns over the coming years.
How do you think investors should position portfolios for this ‘big reset’?
We believe the lesson of history is clear: build globally diversified portfolios and keep them fully invested for the long term. Despite the evidence in favour of this approach, though, many clients aren’t doing this rigorously enough. Many are holding too much cash in their portfolios in the hope of buying in at lower prices after a big sell-off. But given our positive outlook across the main asset classes, we think now makes an especially sensible time to get fully invested in a globally diversified allocation or to revisit allocations that haven’t been updated for a while.
Are there any themes you are emphasising within long-term portfolios?
Yes. We want to have exposure to the major, multi-year forces that are reshaping the world around us.
A great example of this is digitisation. Digital technologies are set to play an ever-greater role in our daily lives and work. Protecting all the data and keeping systems safe is therefore imperative, which is why we favour investments in cybersecurity. We also expect rising demand for healthcare as the world’s population grows wealthier and older. And we see great potential in artificial intelligence throughout the economy, boosting productivity and innovation.
Likewise, we believe some of the biggest challenges facing the world may also offer opportunity. Geopolitical tension between the US and China is a concern for many of our clients, especially in Asia. However, we think certain countries and industries could benefit from the rivalry between these two superpowers. For example, various Southeast Asian economies may get a boost as companies relocate production away from China in an effort to secure their supply chains.
Another key risk for the global economy is around disruption to energy supplies. We therefore want to invest in traditional energy assets as well as the new clean technologies that we believe represent the future of energy.
Let’s talk about Southeast Asia. What does the investment environment in the subregion look like in 2024?
Because of the move to diversify supply chains amid US-China tensions that I mentioned, Southeast Asia is likely to keep drawing business and investor interest. Infrastructure projects may also flourish in the subregion, following the recent launch of Indonesia’s high-speed railway. Among this, we identify potential valuation opportunities, after tepid performance by various markets in recent years. On a sector view, industrials, materials and staples are among the potential beneficiaries we see.
A weaker US dollar could boost Asian financial markets more generally, along with possible falls in interest rates within Southeast Asia.
To learn more about Wealth Outlook 2024, please visit citiprivatebank.com/outlook