Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 46 FIGURE 1 : Shifting Investment Intentions in China 54 47 45 48 43 33 51 56 62 35 29 34 44 51 60 21 23 17 4 12 9 6 5 5 16 6 10 7 12 12 2 1 1 12 15 11 0 20 40 60 80 100 '17 '19 '22 '17 '19 '22 '17 '19 '22 US Japan EU Expansion Remaining the same Reduction Withdrawal/Relocation By Percentage Source: AmChamChina, JETRO, European Chamber and Citi Global Wealth Investments, as of May 11, 2023. Note: The Japan data comes from the JETRO survey asking about companies’ intention to expand business. The data for the EU comes from a survey from the European Chamber while the US data comes from a survey fromAmChamChina. The categories of ‘Remaining the same’ and ‘Reduction’ for US and EU firms are based on estimates based on two survey questions about expansion plans and de-investment plans. FIGURE 2 : Market Share of the Global Semiconductor Sector 0 20 40 60 80% US South Korea Taiwan Europe Japan China IDMShare Fabless Share Total IC Share 54% 22% 6% 6% 9% 4% Source: IC Insights, Citi GPS, as of Oct 2022. Chart shows countries’ market share in key semiconductor subsectors: integrated device manufacturers (IDM), which design andmanufacture semiconductors in-house and fabless shares, which design semiconductors but contract out the manufacturing. Total IC share shows countries’ total market share in integrated circuits (IC), also known as semiconductors or chips. Decelerating exports to China The “small yard, high fence” policy has already greatly impacted semiconductor makers. For US global semiconductor makers, which collectively represent 54% of global semiconductor production, the new regulations mean less business with China in the near term ( FIGURE 2 ) . US companies are withdrawing US personnel from their operations in China and are expected to move specific equipment and assembly operations to the US, Europe and elsewhere. The short-term impact is already showing up in the drop in exports to China. Among the key global semiconductor producers, Chinese imports from the US dropped by a staggering 40% year-over-year (YoY) in 2023— the sharpest decline of any prior period ( FIGURE 3 ) . Despite the drop, we believe the potential for long-term growth prospects in semiconductors will more than make up for the loss of sales to China (see Generative AI: The beginning of (another) technological revolution ) .