Expect commodity prices to remain high and mergers and acquisitions to persist this year, Citigroup Private Bank strategists said yesterday.
The bank also projected further financial and economic reform and deregulation in Japan, and a tightening in global liquidity in 2006, they added.
"The Citigroup Private Bank's global experts are constantly studying the global economy and financial markets, and every half year we share our investment views with our clients across the Asia-Pacific region," said Samuel Suen, Citigroup Private Bank managing director and global market manager for Taiwan.
"The investment advice and capabilities that we are able to offer our clients highlight the intellectual leadership in our wealth management proposition. This ability is something that we take great pride in. This expertise has also been acknowledged by other leading wealth managers."
In a report released by Citigroup yesterday, the bank's strategists noted several events that should mark the end of the liquidity regime in 2006.
"(The) past several years have been marked by abundant liquidity, the sources (of) which have largely been the United States Federal Reserve, American corporate balance-sheet repair, Asian central bank purchases of U.S. dollars, (and) petrodollar profits," the bank noted.
Citigroup said it was expecting tighter monetary conditions and a more restrictive bank lending situation this year.
"The Federal Reserve's rate-tightening cycle should persist in 2006. The European Central Bank appears set on a similar path. China's removal of its currency's peg to the U.S. dollar could see reduced demand for U.S. Treasuries from Asian banks," the report said.
"The stage is set for a possible re-pricing of credit risk and credit quality."
Energy prices should remain high due to rising demand from developing economies such as China and India, and supply constraints, the bank said.
"In the case of oil, for example, investment in logistics infrastructure and new extraction methods will take time to affect supply and delivery, keeping upward pressure on prices," Citigroup said.
Oil a driver
"Sustained high oil prices should stimulate demand for alternative energy sources, and early adoption of alternative energy opportunities will likely prove highly profitable for talented and informed venture capital investors."
Investors should look into the possibility of putting their money on structured products such as commodity-linked notes, managed futures, funds focused on real assets, global infrastructure as well as technology associated with fossil fuel extraction or alternative energy development and delivery, the bank said.
Activities involving mergers and acquisitions are also expected to continue this year as companies are seeking ways to boost profitability, grow market share, and curb costs through the sharing of resources, it pointed out.
"Globally, corporate balance sheets have continued to swell in the years following the initial equity market downturn in 2000," Citigroup said.
"Against this backdrop, a new class of vocal and emboldened activist-shareholders is likely to prod companies in the United States and around the world to boost stock prices through methods such as rising dividend payouts and share buybacks."
Japan, which is experiencing an economic revival following a decade of stagnation, is expected to pursue further liberalization in the corporate sector, the bank's strategists noted.
The second biggest economy in the world would be benefiting from this, they continued.
"The clean-up and shake-up of Japan's banking system has resulted in positive loan growth for two years and has fuelled asset reflation in the country. It is now a question of time before we see the end of deflation, after which Japan should revert to the more familiar growth patterns associated with the traditional economic cycle," the bank said.
Citigroup is currently conducting a 13-city roadshow in Asia. In Taiwan, more than 300 of the wealthiest individuals attended the bank's seminar. The bank advises high net worth individuals and families with a minimum net worth of at least US$10 million, including half of Asia's - excluding Japan's - billionaires, Citigroup said.