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HSBC House Views

Macro Outlook

  • Our global Nowcast remains stable at around 2%. US growth remains robust but is likely to moderate on the back of slowing momentum in consumer spending and cautious business investment
  • Positively, China’s Nowcast regained some momentum in November, with further policy easing likely. Elsewhere, Japan is a key underperformer, although the government has recently announced a large fiscal stimulus package
  • But in an “age of uncertainty” the unbalanced nature of growth leaves the global economy vulnerable to negative shocks. The good news is that low inflation allows policy makers to continue to focus on macro stabilisation
  • Going into 2020, key data points to watch are China credit growth, German manufacturing numbers and global corporate earnings

Investment views

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) remains attractive relative to most fixed income assets – especially developed market government bonds.

Prospective returns are underpinned by pro-active policy makers, which have been willing and able to lean against the downside growth risks 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 enacted some “insurance” policy easing in 2019, and whilst it is now signalling a pause, some loosening this year remains possible.

In our opinion, Eurozone equities benefit from fairly high prospective risk-adjusted returns (on a hedged basis).

The ECB eased policy in September and policy interest rates are likely to remain ultra-low for a prolonged period. Fiscal stimulus is also 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 would benefit from an improvement in the global trade cycle. 

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

Some greater Brexit clarity this year and a fiscal boost to growth may support domestically focused stocks.

We believe valuations are attractive while monetary policy is supportive and a large fiscal stimulus package has recently been announced.

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 loosening by the Fed. EM central banks are also loosening monetary conditions 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, albeit with recent 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.

  • Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout December 2019, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 30 November 2019, our portfolio optimisation process and actual portfolio positions.
  • 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.

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 nor a 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 November 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 December 2019.

 

Source: HSBC Global Asset Management. As at 2 January 2020. The views expressed were held at the time of preparation, and are subject to change.

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