DOHA: HSBC Private Banking is maintaining its positive view for global stocks, US credit and emerging market bonds, albeit with more moderate returns and investor sentiment than in 2017, and with higher volatility. Its latest Investment
Outlook “Riding the economic tide; managing the markets’ waves” highlights some of the key relative opportunities and risks that will shape HSBC Private Banking’s strategy in the coming months, including global trade, corporate investment spending and FX volatility.
“We believe it is important to avoid being swayed by either January’s exuberance or February’s pessimism,” explains Willem Sels (pictured), Chief Market Strategist, HSBC Private Banking. “A strategy where we remain invested, while being selective and managing the risks, is most likely to strike the right balance.” After a long period of mild growth and low and stable interest rates creating a ‘goldilocks’ environment which allowed global markets to appreciate in tandem and with low volatility, how will factors such as the US tax stimulus package and its potential impact on inflation expectations, or potential market concerns about emerging trade frictions,challenge the previous delicate equilibrium? HSBC
Private Banking’s view is that these make the market environment more interesting and more volatile, but still supportive for riskier assets.
The current global backdrop therefore suggests a greater need for portfolio diversification. “We have been advocating deeper diversification, not only across geographic regions and asset classes but within asset classes as well. “Worth noting for Mena region, diversification is also taking place at the national level with impressive foresight and plans to diversify economies which we expect will contribute to stronger growth in the region in the years ahead.” Says Belal Mohammed Khan, Head of Investment Strategy CEMEA, HSBC Private Banking.
“The fundamentals are positive, starting with global growth.Developed markets continue to grow at a pace that is well above their long term potentialandstable growth in China further adds to the picture of continued synchronised economic growth, benefiting companies’ revenues and willingness to invest. The cyclical pickup in US inflation may cause the Fed to bring forward some of their rate hikes, but we think this is now largely “in the price” in bond markets,”says Willem Sels. “Equity markets would be wrong, we think, to see a mild pickup in inflation as a negative.” There are signs of lower global trade growth, which is contributing to a slight easing of growth in the Eurozone.HSBC Private Banking says that slower growth in trade volumes and the potential for markets to worry more about trade frictions, argue for an overweight to domestically oriented companies – typically small and mid-caps – in Europe and the US.
Intra-Asian trade growth should be more robust however, and together with structural growth of the middle class, this supports HSBC Private Banking’s continued overweight to EM Asia.
“Trade frictions in our view will further support China’s commitment to the Belt and Road initiative, and the interest from other nations that stand to benefit. Given these factors, we see structural opportunities for the regional beneficiaries of the Belt and Road Initiative, consumer-oriented companies and China’s New Economy,” says Willem Sels.
Globally, HSBC Private Banking is overweight on capital goods, IT hardware, industrials and engineering companies. The Fourth Industrial Revolution triggers the need for companies to invest, in improved production processes, warehousing, logistics, online distribution and marketing if they do not want to fall behind their competitors. Others will focus on using technology and automation to cut costs in order to stay competitive.
HSBC Private Banking has held a broad overweight to global stocks, in the US, emerging markets and Europe ex-UK. The overweight in Europe ex-UK worked well in 2017, especially because of EUR currency gains.
