Despite a topsy-turvy geopolitical environment, the global economy is returning to normal, according to Citigroup Global Wealth’s newly appointed interim chief investment officer, Steven Wieting. With one minor caveat: the AI revolution is now in full swing. That change has resulted in numerous unexpected investment opportunities, according to Wieting, who cited Citi’s latest semi-annual Wealth Outlook published today, the first since his predecessor, David Bailin, departed earlier this year.
Aligning with Citi’s relatively optimistic forecasts last year, the latest Citi Wealth Outlook predicts global GDP will increase in China, the U.S., the EU, and the UK. Global GDP is expected to increase by 2.6%, the same level it grew by last year, though less than in 2021 and 2022, when GDP grew by 5.9% and 3.3% respectively. The European Central Bank and the Bank of England are expected to be first to cut interest rates next year, followed by the Federal Reserve. Reiterating his predecessor’s prediction from last year, Wieting says that inflation will fall to 2.5% next year, a level not seen since February 2021.
Echoing that optimism, the Nasdaq (IXIC) is up 16.4% this year and the S&P 500 (GSPC) is up 12.8% over the same time. The Dow Jones Industrial average is up 2.9 percent. According to Wieting, that momentum will continue despite ongoing geopolitical turmoil, including conflicts in Ukraine, the Middle East and Africa. Citi's report expresses continued optimism through 2025.
Included among Citi’s “unstoppable trends,” is artificial intelligence, a sector that has raised $28 billion in venture capital this year, according to Crunchbase, with most of those funds going to infrastructure providers like Elon Musk’s xAI, which raised $6 billion last month. Going forward, Citi expects larger investment in the uses of AI, specifically robotics and automation, drug discovery, cyber security, grid constructors and power generators near data centers.
While doomsday predictions about AI’s impact on highly skilled jobs in banking and tech have run rampant in recent months, Wieting looks to history for evidence that the strong economy bodes well for a fast recovery from the likely job losses incurred.
“We’ve been worried about it since the time of Aristotle: technology is going to eliminate all jobs,” said Wieting during a Zoom call earlier this week. He was appointed interim chief investment officer on May 15. “It's only been when you've had to absorb a macroeconomic shock, and a lot of technological change, at the same time, that you've really seen negative outcomes in net employment.”
For example, Wieting blames a loss of labor due to technological improvements in telecommunications, banking and manufacturing between 2008 and 2011 for delaying the job recovery following the housing market collapse. It only took one year for jobs to recover from quarantine losses in 2020, according to the Bureau of Labor Statistics, compared to five years to return to pre-housing crash levels.
“The technological advances that reduced labor were ongoing before and after that weak period for overall hiring,” he said. “The overall recovery was just very slow for a time.” This time around, the tech advances are in artificial intelligence, and while early predictions about the technology’s impact on jobs are not promising, Wieting believes the damage could be short-lived.
In January, the International Monetary Fund predicted that advanced economies with more high-skilled jobs stood to be impacted the most by artificial intelligence, with as many as 60% of jobs affected, compared to 26% in low-income countries. It’s even worse for highly skilled jobs that require a college degree, including, you guessed it, banking. A New York Times report found that companies in finance, including Morgan Stanley, JPMorgan Chase and Goldman Sachs, spend as much as 80% of their payroll on jobs that will be impacted by AI.
“We've coexisted, and increased human living standards, throughout history with technology,” says Wieting. “We're not saying that there aren't scary dark sides to this, including, cyber threats, these sorts of things. But certainly from an investor standpoint, you have to again adapt and embrace.”
Supply chain speculation
While geopolitical uncertainty is a recurring character in the report, being mentioned 105 times, including in Russia, China, the Middle East, and the U.S. election, Wieting expects little impact on the broader economy. "Geopolitical events have rarely altered the course of the global economy," according to the report. In fact, reactions to the uncertainty could actually be good for tech. “Geopolitical risk, for example, is prompting some countries to bolster their economic security, such as their access to semiconductors, other technology, and energy, while also ramping up their military capabilities and readiness for cyberattacks,” the report continues.
Polarization around the U.S.-China strategic rivalry is also included on Citi’s unstoppable trends list. National security concerns emerging from an over-reliance on supply chains that flow through China lead to opportunities among “supply chain diversification beneficiaries.” At the top of the investment opportunities list, showing a 37.6% return since December 2023, are semiconductor equipment makers that are increasingly developing chips specifically for AI. Specifically, Wieting sees potential among semiconductor equipment producers in South Korea and Japan.
Other investment opportunities in the report include Western energy producers, which have seen a 17.4% return since December, followed by medical technology, defense contractors; Japanese yen and yen-denominated tech and financials; structured credit and yield curve normalization.
Though some researchers say AI could fuel yet another S&P rally next year, Citi urges investors to look to smaller firms in untapped regions looking to close the gap with existing chip developers such as Santa Clara-based Nvidia. Supercharging this potential, according to Wieting, are government subsidies. In 2022 the White House set aside $52.7 billion for semiconductor research, development, manufacturing, and workforce development.
“The catching up opportunity of equipment makers is one of our top immediate ideas,” says Wieting. Semiconductor chip development has raised $5.5 billion this year. Broadly speaking, over the next ten years Citi expects a 10.4% return on its strategic equities in emerging markets, compared to 6% in developed markets.
The investment opportunities specifically around AI are bigger than just the chips themselves, according to Kristen Bitterly, head of investments at Citi Global Wealth. One of Citi’s other investment opportunities, healthcare tech, will likely also be driven by AI. “You're looking at studying different types of diseases, the ability for AI to be able to actually accelerate a lot of that experimentation and bring some of these solutions faster to market.”
