Citi: Economic growth to hit 3.4%
Positive outlook amid global uncertainty
Citi forecasts the Thai economy will expand by 3.4% this year and accelerate to 3.6% growth in 2018, underscoring Asia as the most attractive destination for portfolio investment, followed by the European market.
The US bank’s projections are along the same lines as the Bank of Thailand’s 3.4% in 2017 and 3.6% in 2018.
The global economic recovery for the remainder of the year is seen to be on track, with growth estimated at 3% this year and 3.3% in 2018 amid receding structural headwinds, a recovery in investment activity and still-low interest rates.
Even so, lingering political uncertainties and geopolitical risks remain.
At the end of May, global equities were up 10.5% and emerging-market shares 17% on a year-to-date basis. Bond markets have generated positive returns of around 4-7%.
With growth and earnings likely to continue, Citi analysts still see an upside in emerging market equities.
Given attractive valuations and improving fundamentals, European equities also present opportunities, although political and policy challenges continue to linger.
In Asia, India and Indonesia will have high growth, while Europe’s highest will be in Germany, France and Italy.
There are also selected opportunities within US investment-grade corporate bonds, as well as higher-yielding emerging market debt.
Citi Asia Pacific’s regional head of wealth management advisory Adrian Weiss said the recovery in global growth appears to be broad based across developed and emerging markets.
Drivers for strengthening cyclical global recovery include rising corporate profits, high industrial activity, low interest rates and a pickup in investment spending.
Potential risks to the growth outlook include a sharp slowdown in Chinese activity, geopolitical risks and rising scepticism over US tax reform.
Meanwhile, monetary policy remains accommodative, with most central banks in developed and emerging markets expected to stay on hold in 2017, while Citi analysts expect one more interest rate hike from the US Federal Reserve within the year.
All major regional equity markets are expected to deliver positive earnings growth in 2017, a phenomenon last seen in 2010, on the back of a modest recovery in global growth and oil prices.
With investors’ low expectations of US tax reforms and fiscal stimulus, any credible progress on Trump’s policy agenda is likely to be positive for cyclical stocks and US equities. The improving economic and earnings growth will be positive for cyclical sectors such as the energy, financial and technology sectors.
With healthy double-digit earnings growth forecast for emerging markets, Europe and Japan, these more cyclical markets are also expected to outperform the US in 2017.
The US dollar is expected to remain volatile as political headlines help keep a lid on the dollar gains but further Fed rate hikes may limit the dollar’s downside. US dollar weakness is likely to benefit the Euro and pound sterling, he said.
Don Charnsupharindr, retail banking head of Citi Thailand, said investors should have a broadly diversified portfolio to help them navigate different market situations.