2014 annual outlook - citibank malaysia · transitioning to growth 2014 annual outlook | 3 equities...

Citigold

2014 Annual Outlook

Transitioning to Growth

CONTENTS

EQUITIESPage 1

FIXED INCOMEPage 5

COMMODITIESPage 6

FOREIGN EXCHANGEPage 7

SUSTAINABLE INVESTING — CHINA CLEAN SWEEPPage 8

Before you know it, another year has passed, and here we are again wondering what is in store for us in 2014. As usual, 2013 produced its share of uncertainty yet we ended the year with more questions than we answered. Is the New Year going to be a year of growth especially in the US and will interest rates start to ‘normalize’, or are we in for more volatility?

2014 begins where we left off last year with uncertainty of the US budget process, debt ceiling and potential tapering by the Fed. To add to this, we have a new Fed Chairperson, Janet Yellen plus the usual concerns about growth in China and recovery in Europe. But even with all these issues occurring last year, there were many rewarding opportunities. When we review our calls, our best was to shift from bonds to equities early in the year with the MSCI World Index up 18% on a year-to-date basis as of 30th November 2013. However, performance within equities was quite dispersed with developed markets outperforming emerging markets. Our calls on Japan and US did very well while our views on China/Hong Kong, Korea and Taiwan saw relative underperformance. As for bonds, after a multi-year bull market, we saw them retreat as the growth picture improved and talks of Fed tapering begin to emerge. As for our call on Gold, it was timely that we decided to exit it in the middle of the last year.

This year, we expect that with signs that the US economy is picking up momentum, the prospects for the global economy looks brighter. In this environment, the likelihood of bond tapering by the Fed will have a significant impact on financial markets and may dictate where the opportunities are. While the US looks most likely to ease off QE, the prospects of continued liquidity support may remain in Japan and Europe. This may create a situation where the US dollar could strengthen and emerging markets having to endure potential tighter liquidity. In such a diverse situation, we will need to focus on key themes and position our portfolios accordingly. In the US, we would remain invested in selected cyclical growth sectors, although our preference would be relatively more focused on Europe and Japan where liquidity is likely to remain ample. In Europe, we prefer core markets which benefit from the global recovery such as the UK, Germany and France. Within the emerging markets, we continue to favour the North Asian markets such as China/Hong Kong, Taiwan and Korea as they remain cheap and are prime beneficiaries of the recovery in the US economy. Meanwhile, we would continue to remain underweight fixed income but within the bonds space, overweight high yields which tend to benefit from growth on lower default risk. But overall, keep the duration of your fixed income short from an asset allocation perspective.

On balance, expect 2014 to be a year where we could continue to face volatility and at times uncertainty. There are potential headwinds as long term interest rates rise but this is a sign that we are moving into a stronger economic growth environment. It is important more than ever to diversify, be nimble as the global economy transitions to growth.

Haren ShahChief Investment StrategistInvestment Strategy GroupWealth Management, Asia Pacific Citi

Transitioning to Growth 2014 Annual Outlook | 1

EQUITIES

Acceleration in the world economy is likely to help global Earnings-Per-Share (EPS) to grow roughly 7% in 2014, a welcome prospect given the earnings stagnation since 2011. This, along with a mild rerating associated with higher investor risk appetites, drives Citi’s forecast for global equities (measured by MSCI Word Index) to hit 450 by end-2014. The main risks especially for Emerging Market (EM) equities, remains Fed QE-tapering.

Citi analysts expect a modest reacceleration in global real GDP growth from 2.4% in 2013 to about 3.1% in 2014, the best since 2010, with growth in advanced economies (AEs) up from 1.1% in 2013 to about 2.0% in 2014. Growth is likely to be around 3% in the US and UK in 2014-15. On the other hand, Japan’s growth is likely to slow significantly during 2014 as the consumption tax hike bites. Emerging markets (EM) growth may continue to outpace AE growth in 2014, as in every year since 1999. However, the EM-AE growth gap in 2014 is likely to be the smallest since 2002.

Shifting to monetary policy, it is likely to remain loose across advanced economies, and indeed further loosening in 2014 is expected from the BoJ and ECB – with the ECB probably setting a slightly negative deposit rate alongside a lower refi rate, extra liquidity and enhanced forward guidance. The Fed is likely to end asset purchases in late 2014, but its balance sheet at end-2014 may most likely be larger than it is now. A range of advanced economies (probably including the US, UK, Canada, Australia) could begin to withdraw stimulus in 2015, but are unlikely to tighten enough to trigger significant slowdowns. The ECB and BoJ is unlikely to begin tightening policy until 2017-18 at the earliest. By contrast, a range of EM countries may tighten monetary policy in 2014, even amidst disappointing growth, reflecting a mix of worries over inflation, current account/fiscal imbalances and rapid private credit growth.

Earnings: Up From The PlateauHaving rebounded strongly since the financial crisis, global EPS have gone nowhere since 2011. Going into 2014, Citi strategists are predicting global EPS growth of roughly 7%. This indicates that the consensus projections (+9%) are probably still too high. So, the bad news is that EPS forecasts are likely to fall further. The good news is that global EPS are likely to rise off the plateau in 2013-14. And 2012 showed us that equity markets can rise even when analysts are downgrading.

Valuations: Rerated But ReasonableGlobal equity markets have re-rated in 2013. The MSCI AC World trailing PE is currently 16x, well up from the 12x low seen in 2011, but still below the long-run median of 17x. The rerating has been driven by prices — global EPS have been flat for almost three years.

Figure 1: Citi GDP Growth Forecasts (%)

Source: Citi Research. As of November 2013.

9%

8

7

6

5

4

3

2

1

0

-1US EA UK JP CH EM

2013 2014 2015 2016-18

2 | 2014 Annual Outlook Transitioning to Growth

Overall, Citi analysts see 2014 bringing a gradual return to normalcy. Of course, normal also implies surprises and some risks. Politics, with presidential elections in several EM nations and a midterm contest in the US, could throw a curve ball, but such shocks rarely are large enough to materially affect global economic performance over the course of a year. Sovereign accidents in Europe, a fiscal mishap in the US, or a bursting bubble in China are also possibilities, but seem either less likely than in 2013 or, should they happen, of less global systemic significance. The initiation of tapering by the Fed and some macroeconomic vulnerabilities in a few systemically important EMs could create a bit of a jolt in 1Q13. But, once again, it is unlikely that 2014 may bring an EM crisis like those of yesteryear. Moderate risks, moderate recovery. The trademark of 2014 appears to be that of incremental improvements.

USWith diminishing headwinds and ongoing support from Fed accommodation, the US economic expansion is expected to continue over the next couple of years. Over the two-year horizon, Citi analysts expect above-trend growth averaging roughly 2.7% (full-year basis) with unemployment declining to less than 6% by late 2015. Although the recovery is now in its fifth year, it still has the upside of significant cyclical headroom in substantial labour and resource slack. However, factors such as political risk and Fed tapering might prove a headwind in the near term. Indeed, Congressional leaders announced an agreement in October 2013 to fund the government through 15 January and extend the debt ceiling through 7 February 2014. However, that deal offers only a temporary fix and does not resolve the fundamental issues of spending and deficits which they will have to re-visit again at the start of 2014. At the same time, focus is also on the timetable for Fed tapering. Citi’s base case anticipates initial tapering to commence in March with an expected end date in September 2014. That being said, rate hikes are not expected until unemployment is approaching 6%, or well into 2015.

Equities

Citi analysts expect another year of single-digit EPS growth (6.2%) for S&P 500 in 2014. This is below bottom-up consensus expectations which are currently at 10%. Operating margins are unlikely to surge as unsustainably low effective tax rates are likely to climb next year offsetting possible benefits from stock buyback activity. Citi’s end-2014 target for the S&P 500 is 1,900, however sentiment readings do not suggest continued strong stock market gains and a near-term consolidation may be needed. In terms of style, growth stocks may begin outperforming as Citi’s lead indicator model is sending a convincing signal, which argues for tech stocks and select consumer discretionary / health care names.

EuropeThe euro area is recovering, albeit at a crawling pace. The process started in 2Q13 and continued in Q3 when GDP rose by 0.1% QoQ (0.36% annualised), leaving annual GDP growth in negative territory (-0.4% YoY). Going forward, the rebound in economic activity during 2014 (0.9%) and 2015 (1.0%) is expected to be slow and uneven, given persistent headwinds from private sector deleveraging, a strong euro and high unemployment. With governments having made significant progress in terms of fiscal consolidation, and with austerity fatigue now pervasive, fiscal policy is likely to turn broadly neutral in 2014 removing of the major drags of previous years. Despite some improvement, domestic demand is underperforming compared to previous recoveries. The resulting large output gap has been a key factor in the rapid disinflationary phase of the last 22 months. With the balance of risks around the outlook for inflation skewed to the downside, the ECB may cut its key interest rates in 1H14 and introduce additional non-standard measures. However, it is unlikely that downside surprises to its inflation mandate may be sufficiently large to overcome reluctance to engage in large scale sovereign bond purchases/QE.

Improving macro data across Europe, and also in the US, is likely to support a pick-up in earnings growth to 10% in 2014E,

Figure 2: MSCI AC World Trailing PE

Source: Citi Research, Factset. Grey bars are EPS contractions. As of 4 October 2013.

Median 17x

Global PE

70

40

35

30

25

20

15

10

5

0

75 80 85 90 95 00 05 10


Equities

led by Financials. Valuation wise, European equities are trading on long-run average P/E levels of 13.5x although they look very cheap relative to the US. Citi’s end-2014 Stoxx target is 370 and is based on cumulative 2013-15E earnings growth of 25% and an end-2014E P/E of 14x. Improving risk appetite from capital allocators and investors is likely to be the key driver behind the further re-rating of shares. Within Europe, Citi analysts favour UK and their end-2014 FTSE 100 target of 8,000 is based on: 1) better macro, 2) better profits, and 3) further re-rating as risk appetite from investors/corporates continues to rise.

JapanCiti analysts expect a bumpy ride in the economy in 2014. The consumption tax hike from 5% currently to 8% in April 2014 may likely provide strong distortions to economic activity, bringing GDP growth in 2Q14 to -4.8% and resulting in 2014 full year growth of 1.6%. Most notably, the 3%-point hike in the tax rate in the context of only modest growth in wages is expected to erode real purchasing power of household income and weigh on household spending materially. Meanwhile, “policy offsets” to mitigate the negative impact from the tax hike are probably not sufficient. In this environment, the Bank of Japan (BoJ) is likely to implement an additional easing measure in the form of increased purchases of JGBs and risk assets in 2014, although a timing of the action could probably be June or July 2014, so after the consumption tax hike in April.

According to Citi’s top down estimate, TOPIX EPS is likely to increase 50% yoy in 2013 and 20% yoy in 2014, which are similar to the bottom-up consensus expectations. Japan’s earnings revision index has remained in the positive territory and 1H results of FY2013 can lead to further upward revisions. In terms of valuations, the cyclically adjusted PE (CAPE) of TOPIX is currently at 11.9x. Japanese equities have historically experienced significant downturns when CAPE reached 20x. This suggests further upside. Even if TOPIX reaches Citi’s end-2014E target of 1,520, the CAPE would be around 15x, which suggests that valuation are not stretched. Sector wise, Citi analysts prefer financials and auto related industries. Financials benefit directly from Abenomics, which tries to get Japan out of deflation mainly through asset price increases. Auto related sectors are likely to be supported by the US economic recovery and the yen depreciation.

Asia Pacific ex JapanAsia ex China growth in 2014 is expected to be slightly stronger at 6.3% vs 6.2% in 2013, led by a mild rebound in Korea, Taiwan but others may see domestic demand growth weighed from household debt (Singapore, Malaysia and Thailand). Shifting to monetary policy, the next that could eventually tighten is Malaysia (in 2Q14) and Philippines (in 3Q14) but other more “industrialized parts” of EM Asia may likely be on hold for longer, and inflation is unlikely to be a huge issue in 2014. Finally, while US will be a major source of political noise in early 2014, Citi analysts see domestic politics kicking in with elections in three Asian countries that happen to have current account deficits: Indonesia, India & Thailand, which could serve sufficient distraction to delay progress on much needed structural reforms.

Asian equities in aggregate, is attractively valued vs. its own history and earnings are now 18% above their pre GFC peak. North Asia provides cheaper valuations, stronger fundamentals and a more direct play on a pick-up in global growth. In contrast, ASEAN is handicapped by being a consensus overweight and expensive. In terms of liquidity within EM, Asian central bank balance sheets are the only ones that are expanding again, which could continue to be positive for Asia. The rotation out of current account deficits and domestic demand markets is expected to continue as the global growth momentum gathers pace. This bodes well for our overweights in China, Hong Kong, Korea and Taiwan. Sector wise, Consumer Discretionary, Banks, Energy and Technology are preferred. Citi’s MSCI Asia x Japan target for end-2014 is 660, based on a P/E of 13x (a 15% discount to the historic average given reduced risk appetites).

ChinaThe reforms planned by the Communist Party of China will kick off the country’s long-awaited structural rebalancing in 2014-2020. The reforms, if properly implemented, could reshape China’s economy and the equity market. However, China’s GDP growth momentum could initially weaken. Capex growth is likely to remain sluggish ahead of SOE reform, funding constraints could hit local governments due to land reform (negative for infrastructure investment), sales volume in the property sector could decline on fears of a property tax initiative, and the cost of capital should remain high, driven by the outlook for CPI inflation and deposit rate liberalization. Amid less accommodative macro policies, GDP growth may decelerate from about 7.6% in 2013 to 7.3% in 2014, which would be the lowest growth since 1990.

Citi’s base case on the equity market outlook in 2014 is relying on two key assumptions on reform and earnings; 1) Assuming that the reform will be progressive but steady, sentiment normalization would lift the valuation back to a range high in 2012-13; 2) However, corporate earnings would be 10% below current consensus due to a reform squeeze. With that, Citi’s end-2014 target for MSCI China, SHCOMP and HSCEI indices are 77, 2,805 and 14,335, respectively. In other words, Citi’s base case indicates 20% or above index gain in 2014, breaking out of a range-bound trading in the past 2 years. In particular, these reform measures may create re-rating opportunities in certain structural sectors like brokers, healthcare, IT and consumer stocks as they may generally benefit more than cyclical ones in the near term, given that the reform may promote de-leveraging, de-capacity, consumer and services in the economy.

IndiaAlthough growth dipped to a decade low of 4.8% in FY13/14, the inflation dynamics have prevented policy environment from turning expansionary. Monetary policy remains focused on inflation control while risks of fiscal retrenchment have risen as government aims to meet its fiscal deficit targets. But there are some signs of recovery that cannot be overlooked: 1) Infrastructure sector (such as coal, electricity production) has been strengthening steadily; 2) Agriculture production is likely to be robust and; 3) Corporate profitability improved in 2QFY14. As such, Citi analysts are anticipating a steadier and relatively slower real environment with a slight GDP pickup (5.6% FY 14/15).


Equities

The national elections scheduled in May 2014 are probably the biggest upfront market event and may be a source for market swings and volatility. That said, the last six months into an election have historically been strong for India’s equity markets over the last three election cycles. While there are likely other drivers (most so in 2009, the year of the GFC), the market does look forward to (optimistically) to elections. It would appear to be the case in the current elections cycle too. Nevertheless, Citi analysts expect an average but up-ticking earnings trajectory (8% and 15% in FY14 and FY15 respectively) and set an end-2014 Sensex target of 21,800 at 12.5x PE (Dec 15). Preferred stocks and sectors are those with greater earnings predictability and/or favourable earnings momentum. Pharma, Telecom and IT are those that currently score well on these parameters.

Central & Eastern Europe, the Middle East and Africa (CEEMEA)Citi Economists believe that the delay of tapering can be an extra source of volatility in CEEMEA. The outlook for a strong export-led recovery remains uncertain, and a number of countries (Russia, South Africa and Turkey) have uncomfortably high inflation. Furthermore, of the major EM economies, the ones running the widest current account deficits are in CEEMEA: Turkey (6.9% of GDP) and South Africa (5.9% of GDP). As a result, Citi analysts are forecasting GDP growth to remain tepid at 2.8% in 2014.

Following a contraction of 5.6% yoy in 2012, CEEMEA EPS is expected to contract further by 0.7% in 2013, and only rebound very modestly in 2014 (3.3%). As such, the EPS growth outlook is the weakest amongst the three EM regions. In terms of valuations, the region’s PE multiple of 8.7x (2014E) is at a discount to the rest of EM. However, this is largely due to Russia’s extremely low PE of 5.5x 2014E. Multiples in the larger markets range from attractive (Turkey: 9.7x) to expensive (South Africa: 13.7x). Citi’s MSCI EM EMEA target for end-2014 is 370 and preferred market remains Russia.

Russia2014 GDP growth may likely edge up to 2.6% from 1.4% in 2013 chiefly on account of a favourable base and a recovery in Europe. Monetary policy should also lend a helping hand in 2014 as expectations for moderating inflation, deriving from the decision to freeze utility and railway tariffs, provides room for cutting interest rates. Medium-term growth prospects remain only slightly better due to adverse demographics and lack of incentives for enhancing capital accumulation and productivity growth.

From an equity perspective, the slide in the economic outlook is very much reflected in the earnings outlook, with bottom up analysts expecting profits to moderately contract in 2014. At the same time, expectation of the oil price moving sideways over the coming years also poses some challenges to Russia. However, the mitigating factor in the Russian Energy sector is that cash is increasingly being returned to shareholders, and dividend yields look better. Citi’s end-2014 RTS target is 1,610.

Latin AmericaCiti economists have been cutting their GDP forecasts for LatAm region. They are now forecasting GDP to grow by 2.6% in 2013E and 2.7% in 2014E, down from 3.4% and 4.0% respectively at the beginning of 2013. While sluggish growth looks likely to persist in Brazil, with real GDP growth anticipated at only about 2.0% in 2014, GDP growth is expected to rise to about 3.8% in Mexico. Despite slow growth, the Selic rate should reach 10.75% in Brazil, while in Mexico, the central bank may remain on hold in 2014. In Argentina and Venezuela, macroeconomic imbalances continue to grow, leading to low growth and high inflation, and eroding international reserves.

Within LatAm, Citi analysts are expecting reasonable EPS growth both for Mexico and Brazil in 2014E, 9% and 17% respectively. In Brazil, they do not believe the FX hit will be repeated in 2014. Exporters are likely to benefit from the currency weakness we have seen in 2013. Having said that though, they prefer Mexico to Brazil as the region has the best exposure to an improving US. In particular, selected consumer stocks and REITs are preferred based on acceleration of growth into 2014.

BrazilCiti analysts continue to believe that economic growth is unlikely to show a significant improvement after the disappointing 3Q13 GDP figure, supporting their 2014 annual GDP growth estimates of 2.0%. BRL depreciation and resultant inflationary risks may lead the Central Bank to hike the Selic rate further to 10.75% in February 2014 and they may resume the tightening cycle in 2015, further increasing the Selic rate by 125bps, to 12%, in 1H15. Tighter monetary policy should roughly offset the impact of the weaker BRL, and thus Citi analysts are keeping their 2014 and 2015 year-end CPI inflation estimates at 5.9% and 5.5%, respectively. In terms of fiscal policy, primary surplus is expected at around 1.5% of GDP in 2014, an insufficient level to ensure a declining trend for the net public debt/GDP ratio. The weaker BRL and a steady improvement in global growth should cause the current account deficit to narrow in coming years.

With the FX hit presumed not to repeat in 2014, the benefits of a weak currency for exporters, and 6% inflation, earnings growth is expected to come in at 17% in 2014. Citi’s Ibovespa target is 64,000 for end-2014, corresponding to a forward P/E of 12.1x at end-2014E. Finally, in terms of themes, as the BRL has stabilized, the consumer has shown unexpected strength, and the wide valuation gap has narrowed, Citi’s core theme of preference for commodity vs. domestic names is close to playing out. Only banks remain as a large-cap sector that appears broadly undervalued with reasonable EPS growth potential.


Yield and Spread Forecast CommentaryWithin G10 – In the US, with relatively optimistic economic expectations for 2014, Citi analysts expect further normalization in Treasury yields in 2014. Over the past 50 years, 10yr Treasury yields have averaged about 25bp less than nominal GDP. Based on longer-term economic expectations this would suggest a top of cycle 10yr Treasury yield of just above 4%. 2014 is unlikely to be the top of the cycle as Fed Funds are likely to remain on hold the entire year, so 4% as a mid-range point on 10yr yields is probably still a few years away. However, Citi analysts expect 10yr yields to move safely above 3% in 2014 and end the year at 3.3%.

In Europe, a substantial deviation of Bund yields from current levels is not expected in the coming three quarters (1.7-1.8%). However, the front-end of the EUR curve could de-couple further from the US given Citi’s forecast of another 25bp refi rate cut and 10bp deposit rate cut by the ECB. Going into 2015, Citi analysts see a slight improvement in the beta between Treasuries and Bunds and forecast yields to test 2%. The uncertainty around our baseline comes mainly from further potential downward adjustment in inflation and the efficiency of ECB’s response. The yield curve may reflect all these factors and a steepening is expected especially in the 5-10y segment.

In the UK, the forecasts for gilt yields in 2014 suggest a gradual shift towards higher yield levels. For the yield outlook, the speed of policy normalisation is more important than the timing of the first rate hike. Citi’s base case is that policy rates begin to move higher in 2Q15 and reach around 2% relatively quickly before a fresh assessment is made. The economic uncertainties remain great, but the recovery appears to be gathering pace and the risks to the forecasts are probably skewed towards higher yields. Citi analysts expect a further underperformance of gilts vs Bunds and relatively tight spread vs Treasuries.

In Japan, Citi analysts expect JGB yields to hover at low levels in the first half of 2014. Investors may likely plan their portfolio management with an eye on reinvestment risks due to the cumulative market impact of the BoJ’s bond purchase program and the redemption of high coupon JGBs. A transient slowdown of domestic growth is envisaged around the time of 3% consumption tax hike in April next year, which could curb the top side of JGB yields. Meanwhile, the BOJ is expected to implement further easing around Jun/Jul 2014. PM Abe in his policy management may likely stay focused on economic growth and JGB yields could then shift higher on a moderate pace from summer onwards along with gradual rises in growth and inflation expectations.

Within Emerging market sovereign bonds – While core interest rates are likely to remain supportive for EM assets near term, Citi analysts remain wary about their prospects in 2014. In Citi’s view, the strong recent performance provides EM investors with a window of opportunity to reposition portfolios and become more discriminating about duration and credit exposures. Once Fed tapering inevitably begins, core rates will rise and a withdrawal of liquidity from EM markets may resume. Prevailing fiscal pressures and current account deficits could exacerbate deteriorating fundamentals, accompanied by weaker currencies and wider spreads.

Investment Grade and High-Yield USD Denominated BondsEuropean and US bond outlook – Favour defensive duration exposures

Global high grade corporate debt continued to benefit from the delay in Fed tapering, which triggered lower government rates and an increase in risk appetites. Long-dated and low-quality issuers clearly outperformed as investors flocked to the higher-

beta (higher yielding) credits that sold off during the summer months. In the near term, range-bound rates and improved financial conditions should be beneficial for credit. While technical support from fund flows has weakened, fundamentals remain encouraging. Beyond the immediate term, the threat of higher interest rates (not credit quality) remains Citi’s principal concern for high grade returns, particularly in the US and UK. We continue to favour defensive duration exposure (3-7 years) and financials over non-financial debt (with a focus on US and core EU bank / insurance issuers).

US and European high yield have seen stellar returns in 2013, supported by lower core rates and strong risk appetites. HY spreads in both regions have approached post-recession lows as index yields grind lower. Indeed, European HY issuer yields declined to a historic low of 5.35% on October 31. Citi analysts maintain a constructive view on the HY sector. Mutual fund inflows have strengthened the technical backdrop and credit fundamentals remain relatively strong. In the current climate, lower-quality credits are poised to outperform. However, the gradual rise in long-term rates may prove to be more challenging for high yield returns. In our view, potential rate risks far exceed current credit risks. Thus, we prefer to minimize long duration exposures.

Asian markets bond outlook – Primary market is expected to remain active, dominant by new issuances from China

Outlook for 2014 remains optimistic. Although the potential US taper remains as the key challenges, it is expected that the low interest rate environment may be sustained for a longer period of time. On the economic front, Asia is expected to face slowing growth, and a lowering of current account surplus. The withdrawal of USD liquidity may, to some extent, lead to the volatility of the Asian bond market. Nevertheless, Asia may still be in a better shape compared to the other EM countries. It is likely that Asia could outperform in terms of spreads in 2014.

Primary market is expected to remain active in 2014 and there is a high possibility that the amount of new issuances may exceed that of 2013. The new issuance market is likely to be dominant by the Chinese issuers, including both SOEs and privately owned enterprises. In 2013, bonds issued by Chinese entities accounted for 27% of the Asian IG corporate market and 55% of the Asian HY corporate already. Its portion is expected to increase further in 2014, especially in the IG space. This is backed by the tightening of bank borrowings and the increasing liberalization of fund raising in the capital markets. The relatively lower funding cost in the international capital market is also one of the reasons driving Chinese entities to tap the international bond market.

The expected abundant supply of new issuances in 2014 is going to put pressure on bond spreads. Bond investors will have more choices across various asset classes with more attractive valuations. Investment strategies for 2014 is likely to focus on investment graded corporates and financials. Issuers from China may continue to account for the majority share of the primary market. While the SOEs and Chinese property companies will still be the major players, the large-scaled private enterprises may join the party too. The depth of Asia capital market is expected to grow further. Apart from the Chinese issuers, Korean names are also likely to continue to be the frequent issuers, in order to cope with their refinancing needs. We expect 5 to 7 years paper to remain the sweet spot. In the South East Asia space, existing issuers from Indonesia, Malaysia, Thailand and India may tap the capital market, though to a lesser extent. In the secondary market, credit selection is likely to play an even more important role in 2014, as investors will be more focus on relative value trades. As credit spreads are likely to stay wide due to the technical weakness caused by the abundant supply of new issuances, carry trades may be the key playing field for 2014.

FIXED INCOME


COMMODITIES

Macroeconomic factors should continue to mute global demand for commodities for at least another year, so Citi’s outlook for 2014 remains neutral to bearish commodities, even if conditions improve slightly in both advanced economies and emerging markets. However, seasonal and tail risk factors could potentially push prices up.

ENERGY: Citi raised its oil price forecast when it looked all but certain that the US was about to attack Syria. Given that this scenario was averted, along with the progress towards a deal over the Iranian nuclear program, Citi is rescinding its increase in oil price expectations, and is reverting to its previous forecast, with US$97.50/bbl for Brent and US$92.80/bbl for WTI in 2014. The bearish pressures on the oil market are growing and looking less likely to be derailed by supply disruptions in 2014. Venezuela is the best candidate for a potential bullish geopolitical surprise, but overall the odds favour a softer market in 2014 as compared to 2013, with balances pointing to oversupplied crude and product markets.

Citi expects US Henry Hub natural gas to average US$3.70/MMBtu in 2014 as low prices should continue due to strong production growth amid very modest demand gains. On the supply side, production growth from associated gas production should stay strong as superior returns on oil/liquids drilling boost production. The improvement in productivity and efficiency of shale gas and oil production should continue due to the increased application of multi-well pad drilling, technological improvements and learning-by-doing. Meanwhile, demand growth in a normal weather scenario should be led by the industrial sector and exports to Mexico, as new cross-border pipes come online. Gas demand for power generation may turn out to be more modest, as lackluster electricity demand growth amid strong growth in renewables.

BASE METALS: The combination of lower demand, increased supply and reduced pricing power appears to be playing out, and Citi forecasts most base metals to remain under pressure in the medium to longer term.

Copper – In terms of 2014 price trajectory, prices are likely to fall through the year, under pressure from growing copper concentrate and metal surpluses, leading to rising visible copper inventory levels on the one hand, and a strengthening US dollar trend on the other. Indeed, the continued focus on US macro data releases and related market assessments regarding the timing of Federal Reserve tapering of asset purchases may add to softer copper market fundamentals in placing downward pressure on prices. Citi analysts forecast LME 3-month prices to average US$6,650/t for the year as a whole.

Aluminium – The combination of continued over production on the one hand, and expectation of a strengthened US dollar on the other, may likely exert downward pressure on aluminium prices, particularly into Q1 next year. Sustained low prices, could force Western world producers into a further round of production cut announcements next year, with capacity in the USA, Oceania, and Southern Europe continuing to look highly vulnerable. Citi analysts believe such additional cuts may support sentiment towards aluminium later in the year, forecasting prices to trade closer to US$1,835/t by year-end. Nickel – For 2014 as a whole, Citi analysts have increased their average price expectations to US$17,000/t from the previous forecast of US$16,375/t, driven by the view that the Indonesian export ban is essentially being mispriced by the LME market, making upside prices shocks highly likely.

Zinc – Citi’s expectation of 2014 representing a seventh year of surplus for the zinc market is likely to be negative for the short- to medium-term price outlook. Indeed, zinc is likely to be the most significant loser in terms of demand momentum as China re-gears its economy away from being fixed asset investment and construction focussed, to a more consumer driven source of demand, given the metal’s significant exposure to construction activity. Citi forecasts zinc prices to average US$1,860/t in 2014.

PRECIOUS METALS: Fed tapering speculation may push prices towards US$1,200/oz in 1Q14 before the physical market in the form of Chinese buying limit downside price moves. Indeed, Chinese physical retail buying/ investment represents a key source of price support for the gold market, and Citi analysts believe renewed positive buying momentum in China may prevent a wholesale rout of gold prices in 2014, resulting in prices to average US$1,255/oz in the year.

Fundamentally, silver looks vulnerable to further downside moves due to a combination of largely price inelastic mine supply growth and mixed fabrication demand. In addition, the negative impact of US QE tapering on gold, silver’s close relation, as well as longer-term dollar strength is likely to remove support for the metal. Hence, Citi maintains its short-to-medium term bearish view on silver and forecast the average silver price to fall to US$20.30/oz in 2014.

BULK COMMODITIES: Citi analysts believe that thermal coal demand is in structural decline as a result of both increasing environmental pressure and declining cost competitiveness compared to alternatives for power generation. In China, much slower growth is anticipated in coming years as a result of slower GDP growth, a transition to the service sector, growing alternative power sources, and improving thermal plant efficiency. In the US, environmental requirements effectively prevent the construction of new coal fired power plants. And on a global basis, lower costs for gas, wind, and solar power are significantly decreasing coal’s cost competitiveness for power generation. With this in mind, Citi has thus reduced its 2014 thermal coal price forecast to US$79/t for FOB Newcastle.

AGRICULTURE: Citi’s baseline forward price outlook for 2014 suggests only modest relief for the sector in the medium-term with price action tempered in a compressed range for the market as a whole. The agriculture complex is faced with the prospect of measurably looser balance sheets, headwinds from substitution effects and potential biofuel policy easing capping demand, ongoing Fed tapering concerns that should weigh on nominal prices and bearish positioning indicators.

Corn – Record US output and surplus supply builds suggest no need for corn demand rationing coupled with potential biofuel policy easing by the US Environmental Protection Agency amid bumper northern hemisphere crops suggest that corn prices are likely to average US$4.25/bu in 2014.

Wheat – Production rebounds in Black Sea, Canada and Europe appear to be offsetting US short-crop amid prevalent Southern hemisphere/quality risks. US winter-wheat conditions look solid and Citi analysts expect wheat prices to average US$6.90/bu in 2014.

Soybean – Citi analysts forecast that soybean prices in the mid-teens could ease below the US$12.00/bu mark in 2014. Despite Chinese imports remaining strong, the market is well supplied given LatAm offering another record season of planting and Brazil record new-crop potential.


In a very broad sense, 2013 has seen USD strengthen against Asia EM and JPY but weaken against the European bloc (EUR, GBP and CHF). The weakness in Asia EM has centred largely on the South and South East Asian bloc with its impact also negatively influencing the commodity currencies (AUD, NZD and to a lesser extent CAD). Meanwhile JPY continues to weaken as the pace of money base expansion in Japan starts to outstrip the US Federal Reserve (Fed) balance sheet expansion and as Japanese flows make a more decisive shift into riskier assets (stocks and foreign bonds).

The outlook for 2014 should see the current trends continue against JPY, notwithstanding the significant gains made already, the commodity currencies and the Asian EM bloc. Against European currencies however, USD is likely to be more mixed as much will depend on policy actions by the respective European central banks (ECB, BoE, SNB) versus the Fed.

EUR’s broad based attraction stems from euro zone’s balance of payments surplus (current account surplus and strong capital inflows into European equities), but the outlook for 2014 against USD specifically, may likely be guided by policy actions of the ECB against the delayed tapering by the Fed.

The quick recovery in EURUSD following the unexpected ECB rate cut on 7 November to curb rising disinflation risks within the euro zone shows that the ECB needs to follow up with more policy action in order to weaken EUR. The rate cut has not been enough in itself to stem the relative pace of balance sheet expansion that lies in the Fed’s favour.

Put simply, the ECB balance sheet has continued to contract since mid year while the Fed balance sheet continues to expand and this means that even as the Fed commences tapering, the ratio of the Fed to ECB balance sheet may still continue to rise albeit at a slower pace. This in turn could keep USD on the defensive against EUR. For EURUSD to fall, the ECB balance sheet needs to turn from outright contraction to expansion and that may only happen when the ECB decides to add more direct liquidity via additional LTROs or imposes negative deposit rates to expand the euro money base. The current line of thinking within the ECB is consistent with this approach but ECB discussions are not yet at the point of delivery.

The outlook for CHF may in large part be driven by EUR’s direction given the SNB’s retention of the EURCHF peg. Upward revisions to SNB forecasts for Swiss growth and inflation in September suggest deflationary risks may be subsiding, but the recent turn lower in CPI inflation means it is probably too early for the SNB to declare victory against price deflation. This means the exchange rate floor is likely to remain in place through the end of 2014.

Sterling is likely to be the outperformer within the Euro bloc. Economists have upgraded their forecasts for UK growth and employment for 2014 but various leading indicators suggest that even recent upgrades may be conservative. At the same time, rates markets are yet to fully discount chances of higher rates from late 2014 onwards given the likelihood that the Bank of England’s 7% unemployment threshold is likely to be hit around then. As rates adjust higher, this could see a further leg higher in GBP across the board.

Within G10, the commodity bloc (AUD, NZD & CAD) are likely to be most negatively impacted from the commencement of Fed tapering. Within the commodity bloc, AUD is likely to come under most pressure, reflecting the RBA’s clear preference to see AUD lower in order to help re-balance the economy as the resource boom winds down. Citi analysts note that RBA Governor Stevens rhetoric has turned sharply negative in recent weeks saying he is now ‘open minded’ about possible FX intervention.

NZD remains the outperformer within the commodity bloc drawing support from stronger net inward migration flows, healthier employment data and the dairy sector enjoying record export prices. Most importantly, the RBNZ is expected to be among the first G10 central banks to lift rates, probably in early 2014. So even as the Bank tries to jawbone the currency lower, expectations of an early 2014 tightening cycle are likely to make NZD the most resilient within the commodity bloc to a USD rebound. CAD meanwhile, is likely to lag NZD given the BoC’s more dovish tone recently and given Canada’s heavy ratio of commodities to goods trade.

JPY is the currency that is likely to be most vulnerable to further USD gains even if the next 3 months bring about some consolidation due to delays in Fed tapering. Indeed, Citi analysts note that Japanese flows into riskier assets such as foreign bond purchases (FX unhedged) is gaining momentum but the real catalyst for significant additional declines in the Yen is likely to come when the BoJ undertakes additional QE action as the sales tax hike impacts the Japanese economy post April.

Asia EM is a tougher call. Delayed Fed tapering may help but broader EM fundamentals are likely to be mixed at best. Growth expectations in South and South East Asian EM are still slowing despite the pickup evident in advanced economies. Meanwhile, inflation remains high and sticky forcing tighter monetary policy and a worsening growth outlook within the South and South East Asian bloc. Concurrently, current account balances are poor at a time when capital flows may be harder to attract. Stepping back from taper/no-taper gyrations, the broader regional theme has been one of high country level dispersion, with sharp weakness in some (South and South East Asian bloc) matched by resilience in others (North Asia EM). The key issue then is how far this backdrop is already priced into EM asset markets, including currencies.

Positive news from the third Chinese plenum initially lifted Asian markets (including currencies) but given the above concerns, most of the gains were “given back” just as quickly. News of the PBOC loosening the strict trading band around CNY and pledging to “basically exit from normal FX intervention” though has led the Yuan to be one of top performers in FX markets and suggests further market optimism.

The North Asian Bloc (TWD, KRW & PHP) is also likely to benefit from CNY’s constructive tone given their robust fundamentals (current account surpluses and durable growth outlook) and even as TWD and KRW in particular face central bank intervention risk (both the CBC and BoK have been among the most interventionist central banks in Asia to limit currency strength). Negative typhoon impacts have weighed against Philippines’ solid macro fundamentals and combined with the crowded long positioning in PHP, could detract from PHP’s appeal but only in the short term. The more medium term outlook remains positive for PHP given the strong capital inflows into the Philippines led by overseas remittances.

The South Asian bloc is a different story with SGD and MYR likely the most resilient due to Singapore’s MAS retaining its modest appreciation bias and Malaysia’s improved growth and balance of payments outlook. The “twin deficit” currencies of India, Indonesia and Thailand on the other hand remain the most vulnerable to Fed tapering and are forecast to weaken further in 2014. The fact that the ‘twin deficit’ countries continue to be plagued by slower growth and relatively high inflation (especially India and Indonesia) that has prompted more policy tightening and thereby further exacerbating the weak growth outlook may only add to the headwinds for the three currencies (THB, IDR & INR).

FOREIGN EXCHANGE


China’s investment in environmental protection is close to 1.4% of GDP, and between 2010 and 2015 can reach RMB3.4trn, according to State Council plans. While 2012 figures are not yet published, Citi analysts expect investment of more than RMB700bn, and may likely accelerate over the next two years. In this note, we explain how China’s developing policies could support faster ramp up of environmental protection projects.

On Aug 16, the National Development and Reform Commission (NDRC) requested provinces and municipals to ensure emission reduction and energy conservation targets are met. China will need to lower energy consumption per Rmb10,000 GDP by 3.84% each year between 2013-15 in order to reach its 2015 target. The NDRC also set a reduction target for sulfur oxide, chemical oxygen demand (COD), ammonia nitrate and nitrogen oxides. Furthermore in 2013, there has been significant investment into energy reduction and emission reduction programs, with central government budgeting RMB9.37bn, compared to RMB6.37bn in 2012.

As we can see, the guidelines have become more granular and stricter, which should improve efficiency of both existing and new projects, and benefit industry players, specifically in smog emissions, waste water and waste-to-energy.

Air Pollution: Higher StandardsOver the past few months, we have seen incremental policies supporting the measurement and improvement of air quality in China, most noticeable the announcement of clean air investigation plan on Sep 29, and air pollution prevention program. In particular, the environmental results for air pollution are becoming more apparent after China provided an update on air quality standards. Indeed, China is targeting lower emissions – by reducing small particulates (PM2.5) by 15-25% in Beijing/Tianjin/Hebei, Yangtze Delta and Pearl Delta by 2017 – and aims for more than 4% annual nitrogen oxide reduction up to 2015.

Citi analysts continue to see natural gas distributors to be direct beneficiaries of investment in cleaner fuels, and in terms of gas volumes, Beijing and Tianjin should see sharp growth due to ramp up of gas-fired power plants. The use of natural gas vehicles is also expected to be adopted in more cities in China, which may allow companies that are building CNG stations to see additional demand growth. As for power generators and manufacturers, environmental policies may increase compliance costs, which should increase demand for emission control equipment makers. However, the equipment sector faces increasing competition, which may not allow for sustainable margins. Citi analysts expect better monitoring framework and a switch in energy usage could offer more pronounced improvements, while the next steps may likely include investment to improve existing plants and reduce noncompliant plants.

Waste Handling: Resolving Operational IssuesIn September 2013, State Council issued a document to address additional infrastructure construction, which targets to complete 73,000km of sewage pipelines by 2015, re-iterating its plan to raise urban wastewater processing capability to 85%, and municipal waste non-damaging treatment to 90%. These policies should support for more aggressive investment in the sector in the coming 1-2 years.

Citi analysts believe China is targeting better handling and processing of waste from the treatment plants. In the past, the focus has been on building up capacity to meet central government targets, which are often based on percentage of treatment. Unfortunately, this has resulted in an oversight, especially in handling of the byproducts from operation of the plants. In the current period, we are seeing more refined targets, not only for total installed capacity, but also to address the processing cost from these environmental infrastructure projects. For the two main segments, specifically waste-to-energy plants and wastewater projects, operators will need to address the operational issues before they can receive the expected funding and fees. Citi analysts expect this may continue to benefit leading players which have the technology and expertise to execute within tighter environmental benchmark, which in turn may provide additional investment and construction opportunities.

Energy Efficiency: Measurements and LEDsIn 1H13, according to State Development Planning Commission (SDPC), high energy-consumption industries continue to see faster growth, which put pressure on China to reduce the energy consumption per GDP plans. In order to meet the energy target, energy efficiency is becoming more important to meet coal-use reduction. Jiangsu plans to cut energy density by 18% in 5 years, which may drive installation of intelligent electric meters and fluid-measurement tools.

As a result, Citi analysts see LED demand growth continuing, which may likely drive further rerating of the sector. According to checks, lighting usually makes up 20% of electric consumption in some developed countries. In terms of power consumption, LED lights consume only one-fifth the energy needed for a conventional lamp. Moreover, the current LED lighting penetration is still low at just ~10% penetration in China.

ConclusionAs China’s environmental investment continues in the coming 12 months, we also see a rush for project acquisitions from leading companies and some consolidation in the sector. While this may partly be driven by higher valuation multiple for the sector, this may also be related to more stringent requirements requiring further investments.

This could most likely benefit companies with strong infrastructure and experience in the sector, i.e. larger companies with funding advantages and strong understanding of the policies and the technology in the area. On the other hand, companies that have relied on local interest and business connections with sub-standard developments may face challenges to maintain or acquire new projects on tighter standards. In sum, Citi analysts should see improved quality in environmental investment, if the standards are implemented across different parts of China.

Source: National Bureau of Statistics, Citi Research. As of 30 September 2013.

China’s Investment into Environment (RMB Billion)

2007 2008 2009 2010 2011 Total Investment in Environment & Pollution Control 338.7 449.0 452.5 665.4 659.3 City Infrastructure 146.8 180.1 251.2 422.4 346.9

City Gas 16.0 16.4 18.2 29.1 33.1 Centralized Heating 23.0 27.0 36.9 43.3 43.8 Waste-water Disposal 41.0 49.6 73.0 90.2 77.0 Gardening / Green Area 52.6 65.0 91.5 229.7 154.6 Municipal Environmental Services 14.2 22.2 31.6 30.2 38.4

Industrial Pollution Control 55.2 54.3 44.3 39.7 44.4 Environmental Investment for Constructions 136.7 214.7 157.1 203.3 267.9

Total investment as percent of GDP (%) 1.36 1.49 1.33 1.66 1.39

SUSTAINABLE INVESTING – CHINA CLEAN SWEEP

Economic Growth & Inflation Forecasts

GDP Inflation

2013F 2014F 2015F 2013F 2014F 2015F

Global 2.4% 3.1% 3.3% 2.6% 3.0% 3.0%

US 1.7% 2.7% 3.1% 1.1% 1.8% 2.0%

Europe -0.4% 0.9% 1.0% 1.3% 0.9% 0.7%

Japan 1.8% 1.6% 0.9% 0.3% 2.3% 1.4%

Latin America 2.6% 2.7% 3.0% 7.4% 8.6% 8.9%

Emerging Europe 1.8% 2.8% 3.0% 5.3% 4.8% 4.7%

Middle East & North Africa 4.4% 5.0% 5.3% 4.2% 4.5% 5.0%

Asia 6.2% 6.2% 6.3% 3.7% 3.9% 4.1%

China 7.6% 7.3% 7.0% 2.7% 3.3% 3.7%

Hong Kong 3.0% 3.4% 3.8% 4.3% 3.6% 4.0%

India 4.8% 5.6% 6.7% 6.0% 5.0% 5.0%

Indonesia 5.7% 5.3% 5.5% 7.1% 6.6% 5.7%

Malaysia 4.5% 5.0% 4.9% 2.1% 3.4% 4.3%

Philippines 6.7% 7.3% 6.8% 2.8% 3.5% 3.9%

Singapore 4.0% 3.5% 4.0% 2.4% 2.1% 2.2%

South Korea 2.9% 3.7% 3.9% 1.2% 2.3% 3.1%

Taiwan 2.0% 3.2% 3.8% 1.1% 1.7% 2.3%

Thailand 2.8% 3.1% 4.3% 2.1% 2.2% 3.1%

Exchange Rate Forecasts (vs. USD)

1Q14 2Q14 3Q14 4Q14

Europe 1.37 1.39 1.40 1.40

Japan 103 104 105 105

UK 1.69 1.73 1.75 1.75

Australia 0.90 0.89 0.88 0.89

China 6.07 6.06 6.05 6.04

Hong Kong 7.75 7.76 7.76 7.76

India 63.5 63.5 63.0 61.9

Indonesia 11841 11879 11821 11640

Malaysia 3.12 3.14 3.14 3.12

Philippines 42.6 42.2 41.9 41.7

Singapore 1.24 1.24 1.24 1.23

South Korea 1045 1035 1027 1020

Taiwan 29.4 29.3 29.2 29.1

Thailand 32.0 31.9 31.7 31.3

Interest Rate Forecasts

Current 1Q14 2Q14 3Q14 4Q14

US 0.25% 0.25% 0.25% 0.25% 0.25%

Europe 0.25% 0.25% 0.00% 0.00% 0.00%

Japan 0.10% 0.10% 0.10% 0.10% 0.10%

Australia 2.50% 2.50% 2.50% 2.50% 2.50%

UK 0.50% 0.50% 0.50% 0.50% 0.50%

Source: Forecasts from Citi Research, as of December 2, 2013.

Source: Forecasts from Citi Research, as of December 2, 2013.

Source: Forecasts from Citi Research, as of December 2, 2013. Current rates as of December 6, 2013.

Disclaimer “Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global Investment Committee.

Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. The information in this document has been obtained from reports issued by CGMI. Such information is based on sources CGMI believes to be reliable. CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI’s judgment as of the date of the report and are subject to change without notice. This document is for general information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance, prices can go up or down. Some investment products (including mutual funds) are not available to US persons and may not be available in all jurisdictions. Investors should be aware that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible for advising an investor on the laws pertaining to his/her transaction.

Country Specific Disclosures:Australia: This document is distributed in Australia by Citigroup Pty Limited ABN 88 004 325 080, AFSL 238098. For a

full explanation of the risks of investing in any investment, please ensure that you fully read and understand the relevant Product Disclosure Statement prior to investing.

Hong Kong: This document is distributed in Hong Kong by Citibank (Hong Kong) Limited (“CHKL”). Prices and availability of financial instruments can be subject to change without notice. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested.

India: This document is distributed in India by Citibank N.A. Investment are subject to market risk including that of loss of principal amounts invested. Products so distributed are not obligations of, or guaranteed by, Citibank and are not bank deposits. Past performance does not guarantee future performance. Investment products cannot be offered to US and Canada Persons. Investors are advised to read and understand the Offer Documents carefully before investing.

Indonesia: This report is made available in Indonesia through Citibank, N.A. Indonesia Branch, Citibank Tower Lt 7, Jend. Sudirman Kav 54-55, Jakarta. Citibank, N.A. Indonesia Branch is regulated by the Bank of Indonesia.

Korea: This document is distributed in South Korea by Citibank Korea Inc. Investors should be aware that investment products are not guaranteed by the Korea Deposit Insurance Corporation and are subject to investment risk including the possible loss of the principal amount invested. Investment products are not available to US persons.

Malaysia: This document is distributed in Malaysia by Citibank Berhad.

People’s Republic This document is distributed by Citibank (China) Co., Ltd in the People’s Republic of China (excluding theof China: Special Administrative Regions of Hong Kong and Macau, and Taiwan).

Philippines: This document is made available in Philippines by Citicorp Financial Services and Insurance Brokerage Phils. Inc, Citibank N.A. Philippines, and/or Citibank Savings Inc. Investors should be aware that Investment products are not insured by the Philippine Deposit Insurance Corporation or Federal Deposit Insurance Corporation or any other government entity.

Singapore: This report is distributed in Singapore by Citibank Singapore Limited (“CSL”). Investment products are not insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

Thailand: This document is distributed in Thailand by Citibank N.A. and made available in English language only. Investment

contains certain risk, please study prospectus before investing. Not an obligation of, or guaranteed by, Citibank. Not bank deposits. Subject to investment risks, including possible loss of the principal amount invested. Subject to price fluctuation. Past performance does not guarantee future performance. Not offered to US persons.

United Kingdom: This document is distributed in U.K. by Citibank International plc., it is registered in England with number 1088249. Registered office: Citigroup Centre, Canada Square, London E14 5LB. Authorised and regulated by the Financial Services Authority.