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HSBC House Views

Macro Outlook

  • Geopolitical risks and political uncertainty continue to create episodic volatility. But in our view, moving to a conservative allocation is likely to be costly, as it was in 2019
  • Stocks are not overvalued and there is room for a further rally, in our opinion. But we need to monitor profits trends closely, especially in the US
  • Selected EM risk premiums look relatively high and the economic scenario is becoming more supportive. We continue to overweight EM risk
  • The risk premium in global government bonds is negative. But a drastic sell-off in bonds requires a shift in fiscal policies or a sharp increase in inflation
  • The outlook is mildly bearish for the US dollar given the Fed is on hold. However, the dollar can act as a safe haven if uncertainties rise

Investment views

Equities(>12 months)

We believe global equities continue to offer attractive prospective returns in our “favourable baseline” view of the global economy.

Our measure of the global equity risk premium (excess return over cash) has improved over recent months given the rally in government bonds.

Prospective returns are underpinned by policy makers that have proved to be pro-active to slowing growth and increased political risks – this is because inflation is low and government borrowing is cheap

US economic growth is robust and corporate earnings remain at high levels. We think a near-term recession is unlikely.

The Fed has enacted “insurance” policy easing against downside risks, and whilst now being in pause mode, some loosening in 2020 is possible.

In our opinion, Eurozone equities benefit from fairly high implied risk premiums (on a hedged basis).

Ultra-low ECB policy interest rates are likely to persist for a while.   The ECB has recently eased policy, and fiscal stimulus is coming into focus. 

For the time being, a fairly robust labour market is supporting service sector activity – although there are signs of some weakening. The region can benefit from improvements in the global trade cycle. 

The UK equity risk premium (excess return over cash) remains comfortably above the equity risk premium for developed market (DM) equities.

Greater Brexit clarity in 2020 and a fiscal boost to growth may support domestically focused stocks.

We believe valuations are attractive while monetary policy is supportive.

Large corporate cash reserves provide firms with the scope to boost dividends or engage in stock repurchases.

EM equity risk premiums look relatively high. The EM macro outlook is supported by policy easing in China and recent loose-ning by the Fed. EM central banks are loosening policy amid subdued inflation.

We believe there is still significant potential for (selected) EM currencies to appreciate over the medium term.

The structural characteristics of EM economies are significantly better than in the past. 

There has been a loss of economic growth momentum in Latin America, although there are signs of stabilisation. 

Parts of CEE offer us attractive equity risk premiums, but we think high local interest rates and sovereign yields in many countries diminish the case for bearing equity risk.

  • Underweight, overweight and neutral classifications are the high-level asset allocations tilts applied in diversified, typicallymulti-asset portfolios, which reflect a combination of our long-term valuation signals, our shorter-term cyclical views and actual positioning in portfolios. The views are expressed with reference to global portfolios. However, individual portfolio positions may vary according to mandate, benchmark, risk profile and the availability and riskiness of individual asset classes in different regions.

An upward sloping (⬆) “Overweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class.

A downward sloping (⬇) “Underweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would) have a negative tilt towards the asset class.

A sideways arrow (➡) “Neutral” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class.

  • For global investment-grade corporate bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, USD investment-grade corporate bonds and EUR and GBP investment-grade corporate bonds are determined relative to the global investment-grade corporate bond universe.
  • For Asia ex Japan equities, the underweight, overweight and neutral categories for the region at the aggregate level are alsobased on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, individual country views are determined relative to the Asia ex Japanequities universe as of 31 December 2019.
  • Similarly, for EM government bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, EM Asian Fixed income views are determined relative to the EM government bonds (hard currency) universe as of 31 January 2020.

 

Source: HSBC Global Asset Management. As at 3 February 2020. The views expressed were held at the time of preparation, and are subject to change.

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