Andy Sieg, the global head of Wealth Management at Citi, thinks today’s heightened volatility reflects the dynamics of a market returning to normalcy post-Covid while grappling with pronounced political and geopolitical uncertainties.
“We aren’t predicting a hard landing, despite deep uncertainties at the global level,” Sieg told Brazil Journal.
An industry veteran with more than three decades on Wall Street, Sieg joined Citi in September at the invitation of CEO Jane Fraser with the mission of reinvigorating the wealth management area, a business that had been contributing only marginally to the bank’s results: $ 210 million in the second trimester, up from $ 84 million over the same quarter last year. The bank’s total profits for the period were $ 3.2 billion.
Sieg had worked at Citi in the first decade of the 2000s but most recently was with Bank of America, where he led wealth management since 2017.
He predicts that more than $ 100 trillion in new wealth will be created in the next decade, a phenomenon that, in conjunction with demographic change, opens the door to significant business opportunities.
“We are at a moment in human history that could almost be called miraculous,” Sieg maintained. “The level of wealth creation around the world is unprecedented in the history of humanity.”
Below, the highlights of our conversation:
What explains the spike in market volatility?
World markets are still getting back to normal post-Covid, with various forces playing a role in increasing levels of volatility and uncertainty.
Questions have been raised about the sustainability of economic growth, especially in the United States. There are debates as to whether the Federal Reserve has fallen behind the curve, and the US is facing a politically important moment.
We also shouldn’t forget that it’s the end of summer in the US, a time when we often see shifts in market patterns. Some areas are experiencing slightly less liquidity. There was a violent reaction to the decline in carry trade, but in retrospect, it was probably an exaggerated reaction.
Our research team believes we’ll have three rate cuts are likely by the end of the year, beginning with a 0.5% reduction in September. Therefore, we aren’t predicting a hard landing, despite the deep uncertainties at the global level
How should investors react to this scenario?
It’s a good time to take a step back and think about asset allocation and to revisit 5- or 10-year goals. When this type of turbulence occurs, we advise clients to avoid acting rashly and to reassess their objectives.
Stocks have seen significant gains, and for some clients, rebalancing [their portfolios] could make sense. Making investment decisions based on political or geopolitical headlines is usually not a good strategy. Only in rare cases have major geopolitical events caused sustained market downturns. It’s much better to focus on fundamentals.
But you must see a lot of clients with FOMO (‘fear of missing out’), on opportunities in artificial intelligence, for example.
Definitely. The problem is that when those two powerful human emotions take hold – fear and the desire for profit – they distract from a solid, long-term strategy. Our role is to help our clients avoid excesses in either direction.
What is the predominant sentiment following the big uptick in tech stocks?
Interestingly, we’ve seen rapid swings between fear and the impulse to profit. Investors are showing tremendous interest in artificial intelligence and are determined not to miss out on its opportunities. At the same time, they are taking defensive positions in response to geopolitical risks.
Once interest rates normalize, what is the base scenario for long-term rates?
We expect the Fed to bring rates back to their long-term level, which is approximately 150 basis points above inflation. That would be a good starting point.
Most observers think some deflationary forces are still playing out, among them tech gains and demographic factors. However, some of the forces that have helped keep inflation down in the last 20 years may have diminished slightly, and globalization has retreated somewhat.
As a result, we don’t expect inflation to return to its pre-Covid levels. We won’t see zero inflation in the US, but it also shouldn’t be cause for concern.
Speaking specifically about wealth management, where is the industry headed?
I see three main trends. First, despite all the noise in the headlines, I believe we are at a time in human history that could almost be called miraculous. The level of wealth creation around the world is unprecedented in the history or humanity. In the next ten years, more than US$ 100 billion in new wealth will be created – and the phenomenon is global.
In addition, demographic changes are driving a transfer of wealth to new generations, in amounts that exceed US$ 100 trillion in new wealth I just mentioned.
Finally, relevant social changes are occurring at the global level. For example, in the US and some other countries, women already control more than half of the financial decisions taken by businesses. As more family members participate in decision making, the conversations are becoming more profound and involve future planning and succession.
What is Citi’s strategy for regaining ground in this market?
Citi has an incomparable global network. We move US$ 5 trillion per day, in every currency on the planet and in basically all countries.
If you’re a multinational and have a global supply chain, you have almost no alternative but to take advantage of Citi’s network to ensure that your business functions smoothly. In private banking, for example, 25% of the world’s billionaires are our clients.
We know that when spending more time with our clients and presenting them with the full range of services we have to offer gives us the opportunity to deepen our relationships.
