Top of main content

House views

10/06/2020

Macro Outlook

  • Uncertainty remains highly elevated, in terms of COVID-19 developments, the business cycle, oil prices, and policy. There are now “multiple equilibria” for the economic system
  • Our most likely scenario is a “swoosh” type recovery for the global economy – this entails a sharp rebound once lockdowns are lifted, and then a gradual pickup to pre-crisis levels of activity
  • Following the initial shock, we are already witnessing the emergence of cyclical winners (China, industrialised Asia) and relative losers (emerging markets ex Asia, smaller oil exporters, frontier economies, and the eurozone)
  • The global economy needs ongoing support, with little risk of inflation in the near term. The biggest downside risk to this “swoosh” scenario is a policy mistake. “Stimulus fatigue” could set in over the second half of 2020

Investment views

Equities(>12 months)

While the COVID-19 pandemic represents a very significant challenge for the global economy, lower equity prices this year has materially increased our measure of prospective returns

Lower developed market government bond yields has also increased the relative attractiveness of equities over bonds

Substantial policy easing and reduced spread of COVID-19 have reduced downside tail risks

US policymakers have acted in a timely and coordinated manner, with the US benefiting from significant economic, medical, and technological resources to fight the outbreak. Corporate earnings have also been outperforming other regions, and exposure to big tech companies has been beneficial

We downgrade to neutral amid ongoing political challenges to significant co-ordinated fiscal policy support, while the ECB is pushing against the limits of it mandate. This is in the context of the eurozone’s weak pre-crisis economic performance, the risk of a hard Brexit later this year, and the potential for government pressure to maintain low dividends during the crisis

Nevertheless, prospective risk-adjusted returns are attractive in our view. The ECB has so far been proactive and innovative in its policy approach to support bank liquidity and lending to the real economy, and has increased asset purchases. The German government has engaged in very significant fiscal easing

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

The UK government and the Bank of England (BoE) have implemented a comprehensive and coordinated package of economic stimulus measures aimed at supporting businesses and employment

We move to neutral as policy support is constrained relative to other countries by already ultra-low interest rates and a high government debt level. Meanwhile, Japan’s economic growth was very weak prior to the COVID-19 outbreak

However, valuations are very attractive, in our view, while Japan (along with other industrialised Asian economies) has made good progress in tackling the spread of COVID-19 

Valuations are broadly similar to DM equities. In our view, the bright spot is EM Asian markets which can benefit from China’s growth recovery and further policy actions

Ultra-loose Fed policy and lower oil prices are significant tailwinds to many EM economies

Low commodity prices is a major headwind to already weak growth momentum in Latin America and Russia. CEE economies are vulnerable to a manufacturing slowdown in Europe given supply chains

Many EM economies (mainly outside of Asia) have limited capacity to manage the current health and economic crises. COVID-19 case growth remains on an upward trend in a number of Latin American countries 

  • Icons:⬆ View on this asset class has been upgraded     No change   ⬇View on this asset class has been downgraded.
  • Underweight, overweight and neutral classifications are the high-level asset allocations tilts applied in diversified, typically multi-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.
  • “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.
  • “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.
  • “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 also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, individual country views are determined relative to the Asia ex Japan equities universe as of 30 April 2020.
  • 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 May 2020.

 

Source: HSBC Global Asset Management. As at 1 June 2020. The views expressed were held at the time of preparation, and are subject to change.

Discover more fresh perspectives

More videos on how HSBC Global Asset Management connects you to global investment opportunities
Comprehensive fund information across different asset classes to diversify your portfolio