Event Overview:
Bloomberg’s Year Ahead Summit in Davos brought together global leaders to discuss strategies for navigating geopolitical and economic challenges in 2023. Despite global uncertainties, the focus was on identifying opportunities for growth and innovation in the face of adversity.

Global Economic Outlook:
Russia’s ongoing war in Ukraine and the energy crisis in Europe have created a difficult economic landscape. The cost of living has skyrocketed, and central banks are working to control inflation by raising interest rates. A soft landing for the economy seems unlikely, leading to concerns about potential economic downturns.

Davos Agenda:
The summit’s goal is to provide insights into the issues and challenges businesses will face in 2023. Topics include the rocky economy, ongoing war, changing workplace dynamics, and the threat of climate change. A stellar lineup of speakers, including CEOs from Citi, BlackRock, and Hong Kong Stock Exchange, will share their perspectives.

Larry Fink on ESG Investing:
BlackRock’s CEO, Larry Fink, addressed the backlash against ESG investing and its impact on the company. Despite some political resistance, BlackRock saw a net inflow of $400 billion in long-term flows last year. Fink emphasizes the importance of decarbonization and transitioning to sustainable energy sources. He highlighted the IRA’s impact in the US and the growing interest in partnerships for decarbonization efforts.

Personal Attacks and Polarization:
Fink expressed concern about the increasing personalization and demonization of ESG issues. He noted that attacks on him and BlackRock have become personal, creating a polarized narrative. Fink stressed the importance of a fair and just transition to sustainable practices.

Client Engagement:
Fink emphasized the value of in-depth conversations with clients across different regions and political affiliations. He highlighted positive client feedback and the growing depth of discussions on ESG and sustainability.

BlackRock’s Success:
BlackRock has been winning more portfolio allocations from pension funds, including the entire pension plan of a major hydrocarbon company. Despite accusations of being an “enemy” of energy companies, BlackRock continues to work with them on decarbonization pathways.

Larry Fink’s Position on Divestiture:
Fink is hostilely against divestiture, as it merely shifts ownership from public to private hands and does not address the underlying issue of climate change.

Consistency of Fink’s Message:
Fink emphasizes that his message on decarbonization and climate, communicated in his 2020 letters, remains valid today. He refutes claims that he has changed his stance, highlighting the importance of context and avoiding taking sentences out of context.

BlackRock’s Client Engagement:
BlackRock focuses on winning business through long-term performance, guidance, and fiduciary standards. The firm treats each client individually, with a majority of its client flows being private flows.

Efforts to Change Narratives:
Fink acknowledges efforts to change the narrative surrounding BlackRock’s involvement in ESG and political issues. He emphasizes that BlackRock is not politicizing investing and is committed to engaging with stakeholders to address concerns.

Upcoming Annual Letter:
Fink confirms that an annual letter will be released during the current quarter, focusing on the concept of hope.

Addressing Global Challenges:
Fink expresses concern over declining birth rates in developed countries, attributing it to fear of mortality and uncertainty about the future. He highlights the importance of hope in motivating investments and the need to create a better world with improved economic conditions and reduced inflation.

Economic Outlook:
Larry Fink expresses concern about declining standards of living and lack of hope in the world. He sees some economic improvement, but emphasizes the need for sustainable growth and better wages.

Investing Environment:
Fink highlights the shift in investment strategies due to changing market conditions. He suggests that today’s investment opportunities are better than in the past two years. Bonds play a more significant role in portfolios with improved yields. Valuations in companies are more realistic, offering better returns.

Inflation and Interest Rates:
Fink questions the 2% inflation target and suggests that a 3%-3.5% rate may be more realistic. He expects central banks to keep interest rates higher for longer, impacting liquidity.

Energy Markets and China’s Economy:
Fink discusses the potential impact of China’s economic rebound on energy demand and inflation. He sees elevated energy prices if China’s demand for oil increases amidst a mild recession in Europe and the United States.

Private Markets and Infrastructure:
Fink expects a recalibration in private markets, with a focus on income-oriented private illiquids, especially in infrastructure and sustainability. He notes that investors’ overwhelming interest in illiquids in recent years was a wrong trend.

Liquidity Concerns:
Fink anticipates reduced liquidity in the future due to the limits of fiscal stimulus and central bank support. He emphasizes the importance of considering liquidity risk in investment portfolios, particularly for retirement plans.

Economic Growth:
Larry Fink expresses concern about anemic growth in the next 5-7 years, with a 2% growth rate being a challenge. He emphasizes the need for growth to enable fiscal stimulus and avoid over-reliance on central bank interventions.

National Security and Redundancies:
The focus on national security has led to calls for more self-sufficiency in areas such as chip manufacturing and energy independence. While this can provide long-term deflationary effects, it may also create inflationary pressures due to redundancies and increased costs.

Productivity and AI:
Fink acknowledges that remote working has negatively impacted productivity, contributing to high inflation. He sees potential in AI to boost productivity but also raises concerns about job losses unless immigration policies are adjusted.

Legal Immigration Policies:
Fink highlights the decline in legal immigration in the US, emphasizing its impact on the labor shortage. He suggests that more open immigration policies could help address labor shortages and contribute to economic growth.

Ukraine Reconstruction:
BlackRock has been hired by the Ukrainian government to assist in building a reconstruction fund. Fink emphasizes the need to ensure opportunities for private capital and fair returns for investors in Ukraine. The goal is to make Ukraine an attractive destination for public and private investment.

Changing Globalization:
Globalization is not dead but evolving. Changes in globalization have various impacts on the global economy and Citi.

Citi’s Global Identity:
Citi’s global identity is at its core. The bank’s global presence and operations are key factors in its identity.

Challenges and Opportunities:
Citi faces challenges due to changing globalization, including geopolitical tensions and regulatory changes. The bank also sees opportunities in emerging markets and technology advancements.

Citi’s Response:
Citi is adapting to the changing global landscape by focusing on key areas such as digitalization, sustainability, and risk management. The bank is committed to its global presence and serving its clients worldwide.

Conclusion:
Citi remains committed to its global identity and is actively addressing the challenges and embracing the opportunities presented by the evolving global landscape.

Resiliency Focus:
Digitization has been transforming industries and connectivity, but recent events have led to a focus on resiliency for clients. This translates into energy, food, water, and financial security. Companies are rethinking operational risk due to supply chain disruptions.

Complexity and Growth:
Globalization is becoming more complex due to geopolitical tensions and other factors. These complexities add costs but can be managed.

Citibank’s Cross-border Business Growth:
Citibank serves 5,000 multinational clients with cross-border needs, operating in 100 countries. The core business grew revenues by over 30% last year. Volumes exploded due to supply chain reconfigurations and diversification. The shift in mix has added growth opportunities. Citibank has gained market share, especially among mid-market companies and digital players.

Recession Outlook:
Different countries are at different places economically. A rolling series of country recessions is expected, but not a global recession. Geopolitical events can impact the outlook.

Citi’s Economic Outlook:
Citi expects a mild recession in the United States, driven by persistent service inflation. However, the vulnerabilities that amplified previous recessions are not present, such as banks, consumer balance sheets, and corporate balance sheets being in good shape.

Confidence in the Economy’s State:
Citi serves clients across the spectrum, including those in private asset space. The company sees healthy corporate balance sheets and low net credit losses, indicating a strong economic outlook.

M&A Activity and CEO Mindset:
The number of dialogues with CEOs about transformational M&A is significant, despite mild recessions. Corporate balance sheets are in good shape, and CEOs are considering transformation more than expected.

Managing a Portfolio of Diverse Situations:
Citi has a team experienced in managing a portfolio of different situations worldwide. The company conducts multi-dimensional and multi-faceted stress tests to prepare for various scenarios.

Transition and Strategy at Citi:
Citi is undergoing a transition to implement its own strategy under the new CEO. The focus is on core businesses and identifying locations where the company can make a profit.

Retail Banks and Margin Management:
Citi is reviewing retail banks, such as Banamex in Mexico, to determine which ones to retain. The company is focused on managing margins and selecting locations where it can make money.

Strategic Direction:
HSBC aims to become simpler, focused, and better connected, aligning its businesses to serve clients with cross-border needs.

Core Businesses:
The bank is doubling down on investments in its four core businesses that cater to this client base, driving connectivity and cultural change to achieve standards of excellence.

Divestments:
HSBC is exiting non-core businesses where it believes it is not the best owner and divesting them in the shareholders’ interest.

Banamex Divestment:
The bank is in active dialogue regarding the sale or IPO of its consumer business in Mexico, Banamex, with a dual process underway.

Mexico’s Importance:
Mexico remains a crucial country for HSBC, and the bank is retaining its institutional franchise there to connect Mexico to the world and vice versa.

Institutional Client Inquiries:
HSBC has witnessed a surge in inquiries from institutional clients worldwide seeking diversification beyond China, with Mexico being a prime destination.

Consumer Franchise Divestment:
HSBC recognizes that it is not the optimal owner of the consumer franchise in Mexico and is divesting it to focus on its core strengths.

Wealth Management:
Citigroup has a strong wealth management division with an average net worth of $450 million per client. The division has been integrated from five or six different parts of the bank into a single platform. A leadership change in the division is not expected to slow down its operations.

ESG (Environmental, Social, and Governance):
Citigroup is focused on helping clients navigate major transitions, such as climate change. The bank supports energy security and sustainable energy investments simultaneously. Fraser emphasizes the need to reduce noise and focus on practical solutions to support clients.

Hybrid Work:
Fraser believes in a balanced approach to hybrid work, recognizing the need for collaboration and mentorship. The bank measures productivity and provides coaching to employees who need improvement. Fraser acknowledges the potential impact of labor supply challenges in the coming years.

Emerging Markets:
Citigroup is exploring opportunities to play a bigger role in key emerging markets, such as India and the Middle East. Fraser highlights the importance of these markets for overall global growth. The bank is engaging with Middle Eastern clients to understand their investments in Africa.

Definition of Neom:
Neom is a region in the northwest of Saudi Arabia, covering 26,500 square kilometers. Its name is derived from the Greek word “Neo,” meaning new, and the Arabic word “on,” meaning future.

Strategic Location:
Neom is situated on the shores of the Red Sea, where around 13% of global trade passes through daily. It is within a six-hour flight radius of 40% of the world’s population.

Global Opportunity:
Neom represents a global opportunity to redefine sustainability, livability, and innovation.

Redefining Sustainability:
Neom aims to be powered by 100% renewable energy and is working towards a net zero carbon society. It will focus on sustainable practices and protecting the environment.

Redefining Livability:
Neom strives to provide an exceptional quality of life by offering access to sustainable food, a diverse international community, and a variety of landscapes. It will feature various regions with distinct living experiences.

Neom’s Ambitious Vision:
Neom aims to redefine businesses by promoting rapid growth, progressive laws, and attractive incentives. The city will focus on 14 economic sectors to redefine energy, mobility, industrial design, and technology.

Regions and Sectors:
Neom has launched four regions: The Line, Oxygen, Trojana, and Sandala. The Line is a vertical city with all daily needs within a 5-minute walk, aiming to host 9 million people by 2045. Oxygen is an industrial city focused on innovation and green technology, featuring a green hydrogen power plant and data center. Trojana is a year-round mountain destination set to host the Asian Winter Olympics in 2029. Sandala is a newly launched island in the Red Sea, offering a yacht club, residential facilities, and a golf course.

Infrastructure and Developments:
Neom Bay Airport is operational with flights to London and Dubai, and a second runway is under construction. Neom International Airport, scheduled to open in 2030, will accommodate over 100 million passengers. Neom has established subsidiaries for utilities (Enowa) and technology (Tonamis). Partnerships with Volocopter and McLaren have been formed to introduce advanced mobility solutions. Neom has collaborated with renowned media companies for various productions.

2023 Priorities:
Achieving 1 million population, creating 380,000 jobs, and opening Sandala and Trojana. Oxygen’s population will exceed 90,000, contributing over 50 billion to Saudi GDP. Ensuring timely delivery, quality, and cost-effectiveness in all regions. Driving commercial excellence and focusing on building partnerships.

Collaboration and Partnerships:
Neom recognizes the importance of collaboration to achieve its goals. The city seeks partners who share its values and principles and believe in its vision. Neom aims to extend its reach and invite others to be part of its journey.

Hong Kong’s Economic Momentum:
Hong Kong’s economy is poised for a strong recovery in 2023, with GDP growth expected to surpass Singapore’s for the first time in 15 years. The city’s reopening after three years of isolation due to COVID-19 restrictions is a key factor driving this growth.

China’s Reopening:
China’s rapid reopening is seen as the primary catalyst for Hong Kong’s economic recovery. The post-COVID reopening is expected to have a positive impact on global markets and will likely lead to increased activity in Hong Kong.

Hong Kong Exchange’s Performance:
The Hong Kong Exchange has seen a significant increase in trading volume since the beginning of 2023, with an average daily volume of 150 billion Hong Kong dollars compared to 125 billion in 2022. The Hang Seng Index and the Hang Seng Tech Index have also experienced significant gains since November 2022.

IPO Pipeline:
Hong Kong recorded 90 IPOs in 2022, raising approximately 110 billion Hong Kong dollars. In December 2022 alone, 20 IPOs took place, indicating a strong pipeline for the upcoming months.

New Listing Regime:
The Hong Kong Exchange is working on a new listing regime to attract companies with high valuations, high investments in R&D, and no revenues or profitability. This new regime aims to support companies in emerging industries such as artificial intelligence, quantum computing, and space technology.

International Companies Listing in Hong Kong:
Hong Kong has recently introduced a new policy that allows international companies listing in Hong Kong to be purchased by mainland Chinese investors. This policy is expected to attract international companies and further enhance Hong Kong’s role as a global financial hub.

Dual Listing and Delisting Risks:
Despite the easing of delisting risks for Chinese companies listed in the U.S., Hong Kong remains a popular destination for dual listing. The Hong Kong Exchange’s preference is for companies to have the option to list in multiple markets, promoting global connectivity and investment flow.

China’s Capital Market Growth:
China’s capital market is expected to grow significantly in the coming years, with a potential market capitalization of $100 trillion within 10 years. The reopening of China and the integration of Hong Kong’s financial market are seen as key drivers of this growth.

China’s Capital Market Size and Potential:
China’s current debt and equity markets total $25 trillion, representing approximately 130% of its GDP. Compared to most economies with capital markets at 400-600% of GDP, China’s capital market has significant room for growth. The development of China’s capital markets will reduce reliance on traditional savings and bank deposits, fostering economic growth.

Excess Savings and Capital Market Opportunities:
China’s savings rate, traditionally around 20% of disposable income, has jumped to over 30% during the last two years. This excess savings, totaling around $2 trillion, presents an opportunity for investment in capital markets as China reopens.

Regulatory Clampdown Concerns:
Recent clampdowns on brokerages, such as Futu, raise concerns among investors about regulatory intervention in sectors like the internet and finance. Ongoing regulatory adjustments aim to establish appropriate parameters for new and evolving sectors like platform economies.

End of Regulatory Rectification:
Messages from Chinese authorities suggest that the rectification process in platform economies, internet economy, and fintech is nearing completion. Chairman of CBIRC publicly stated the end of a two-year rectification process, signaling a potential end to regulatory clampdowns.

Challenges Faced by the New CEO:
The CEO joined in May 2021 during a market peak, facing challenging market conditions since then. Experienced a market recovery in October, but overall sentiment remains cautious. The CEO is the first known Chinese in the position and has faced management changes at the top, potentially impacting team maintenance and day-to-day operations.

The Three Focus Areas for the Marketplace of the Future:
Connecting China and the World: This involves initiatives such as ETF Connect, Swap Connect, bond futures, A50 equity index futures, and southbound stock connect. Connecting Capital with Opportunities: This involves attracting talented individuals and promoting new people to challenging positions. Connecting Today with Tomorrow: This involves focusing on long-term fundamentals and doing the right thing for the long-term success of the company.

Responding to Shareholder Pressure:
Despite facing six difficult quarters, the focus remains on long-term goals and doing the right thing for the company’s long-term success. The company has achieved significant milestones in connecting China and the world, including the implementation of various initiatives. The focus is on execution and creating the right conditions for the company to thrive, rather than short-term market fluctuations.

Excitement and Concerns for the Year Ahead:
Excited about the reopening story and attracting international companies to the markets. Concerned about geopolitics and the potential for conflicts between East and West, which could derail progress. Aiming to minimize conflicts and promote dialogue between different parties.

Key Megatrends Shaping Investment Strategy:
Demographics: Changing demographics, with a growing middle class and aging population, are driving demand for new products and services. Technology: Rapid technological advancements are creating new industries and disrupting traditional ones. Climate Change: The need to address climate change is creating opportunities for investments in sustainable technologies and solutions. Geopolitics: Shifting geopolitical dynamics are affecting investment decisions and creating both risks and opportunities.

Demographic Shifts:
China’s population is aging, while India’s is growing. This will impact healthcare, workforce evolution, and retirement funding. Pension liabilities and aging populations are major challenges.

Conflict and Competition:
The world is moving from a unipolar to a multipolar system. Economic competition between the United States and China is a key factor. Supply chains are rearranging, and companies are adopting China plus two sourcing strategies.

Technology and Productivity:
Artificial intelligence and productivity are key drivers of growth. Chat GPT and other AI tools are emerging as potential investment opportunities. Finding solutions for increasing productivity is a major focus.

Abu Dhabi and the UAE’s Strategic Positioning:
Small size and strategic location facilitate logistics and transportation. Agility in government and the public-private sector relationship attracts investment. The UAE’s open and tolerant society is attractive to global talent. The country’s strong financial position and infrastructure make it well-positioned to manage megatrends.

Long-Term Perspective:
The speaker emphasizes the significance of having a long-term investment horizon, allowing for patient decision-making and the ability to invest in projects with a longer gestation period. The flexibility of not having to liquidate investments within a short timeframe enables investors to stay invested in projects they believe in for 10, 12, or even 15 years.

Disciplined Re-underwriting:
Despite the long-term approach, investors still maintain the discipline of re-underwriting their investments, ensuring that capital is allocated judiciously. If an investment is believed to have favorable tailwinds, it receives backing, demonstrating confidence in its potential.

Unknown Unknowns and Black Swan Events:
The speaker expresses concern about unpredictable events or “black swan issues” that may arise unexpectedly. The challenge lies in identifying and planning for these unknown unknowns that can significantly impact investment outcomes.

Navigating Conflict and Economic Upswings:
In a world where conflict is becoming more prevalent and economic upswings occur, investors need to be pragmatic and hyper-realistic in their approach. By seeking opportunities and maintaining a level-headed perspective, investors can navigate these challenges effectively.

Private Sector Collaboration:
The private sector is seen as an ideal partner for investment due to its agility and ability to identify opportunities. Investors are encouraged to engage with the private sector to combine their expertise and resources for mutually beneficial outcomes.

Signals of Economic Recovery:
Inflation is a key concern among investors, and signals indicating a potential economic recovery should be closely monitored. The speaker emphasizes the importance of staying updated and informed about economic developments to make informed investment decisions.

Economic Prognostication:
Expert opinions vary widely regarding the economic outlook, with some expecting significant growth, while others predict doom or stagnation. The current situation differs from previous cycles due to the more persistent nature of inflation.

Green Shoots of Recovery:
Some positive signs of economic recovery are emerging in Europe and the United States. Asia, particularly China, remains a question mark due to its lack of inflation issues but concerns about economic growth.

China’s Role in Global Growth:
China’s rapid growth in the past was a significant driver of global economic growth. It is uncertain whether China will continue to play this role or adopt a more measured approach to growth.

Impact of Backlash on BlackRock:
BlackRock has faced backlash and lost $4 billion in flows from various states. Despite this, the company experienced strong long-term flows and government support last year.

Citi’s Private Bank Clients:
Citi’s private bank clients, typically first or second-generation entrepreneurs, have a net worth of approximately $450 million. These clients have a long-standing relationship with Citi, which has helped them expand globally.