Global Asset Allocation
Citi House Views for 2017
 Asset Allocation & Macro Overview
– Easier fiscal policy, and a shift away from super accommodative monetary policy,
was already under way but the US Election has potentially supercharged this
theme for 2017 and 2018.
– The 1980-85 template, not perfect we know, suggests bond yields rise and the $
rallies with this policy mix and that this happens well before fiscal deficits actually
widen. Our Asset Allocation works with the assumption of higher (especially real)
yields and a stronger $. But we recognize that a fiscal driver, rather than a
monetary one, will change dynamics in $/ commodity price correlations.
– We consider the risks to our central case: broadly these are that financial
conditions tighten prematurely, trade wars occur, real was occur or that Trump
turns out to more Berlusconi and less Thatcher.
– Overall, these risks mean we have to recommend that investors remain tactical in
their allocations with one eye on the political news flow. We like US equities not
least because we think buy backs and dividends may surge 60% and 40%
respectively on HIA2. We think EM underperforms as UST yields rise and the $
appreciates but the asset class is still cheap and has commodity market support
and we are neutral CEEMEA and underweight the other regions