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April 30, 2017

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Citibank confident in oil in 2016 global predictions

TAIPEI, Taiwan--Forecasters at Citibank (Taiwan) recently predicted that mainland China's economic slowdown will lead to major revisions in international stock markets in 2016, and regarded crude oil as the only worthy investment target in the energy sector.

Stock market declines, the depreciation of the Chinese currency, and flat commodity prices all present a challenging environment for investors, stated Citibank analysts.

Citicorp Vice President Spencer Wang (王進彰) said investors could, after evaluating their risk preferences, choose to weigh in on high-yield bonds and energy, whose prices had previously tumbled, as well as crude oil — which Wang believes is poised for a mild rebound.

Markets such as the U.S., Europe and Japan are also worthy of attention since they are more resistant to market shocks, remarked Wang.

China remains a key concern, said Citibank analysts. The world is watching as it makes the transition from an export-oriented market to a domestic consumption-led economy.

According to data released by FPA Houston, the annual growth rate of China's exports drastically dropped from its peak of 25.4-percent between 2002 and 2007, to 3.5-percent from 2014 to 2015.

Citibank advises investors to be wary of the risks that China and emerging markets pose in the short term.

As exports fall, investments have accounted for more than 44 percent of total economic output since 2008. However, Citibank stated 30-percent is a more reasonable benchmark, to avoid waste created by overinvestment.

Rattled by an unending oil price slide, some investors are seeking to cash in on materials, observed Citibank analysts.

However, Wang said that crude oil is the only item in materials worthy of investment. Compared to other commodity prices, oil prices are particularly prone to the impact of changes in supply and demand, as well as geopolitics. Therefore, fluctuation is the norm for oil prices, stressed Wang.

The oil price collapse had also hit high-yield issuers. Citibank analysts said investors do not need to urgently pull back from investing in high-yield bonds. Though unemployment rates are declining and value generated from manufacturing is increasing, wages have not been going up.

The firm stated that all investments contain some level of risk, and before making decisions, investors should first understand their targets and assess their own risk tolerance.

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