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HSBC House Views

Macro Outlook

  • Global growth continues to face headwinds from a downturn in the industrial cycle and uncertainty related to trade tensions. Nevertheless, the trend in the global Nowcast remains broadly stable at around 2%
  • US growth remains robust but is likely to moderate. A marked fall in some business surveys of late has increased market concerns over a sharp slowdown, but we do not expect US growth to drop materially below trend
  • Growth elsewhere is already below trend, although our Nowcast for China has risen gradually over recent months, consistent with improved credit dynamics. Europe remains the main underperformer
  • The unbalanced nature of growth leaves the global economy vulnerable to negative shocks. However, policy makers are now making a concerted effort to limit the risk of a further sharp slowdown

Investment views

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

We believe global equities still offer attractive rewards despite the risks to the growth outlook.

Policy support can help offset headwinds from more modest global growth, trade tensions, and political uncertainty in many regions.

US economic and earnings growth remainsrelatively robust. The risk of a US recession remains modest, in our view.

Positively, the Fed is enacting “insurance” policy easing against downside risks.

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 until at leastthe early 2020s.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.

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

In our view, sterling weakness amid a “no-deal” Brexit outcome may support the earnings performance of UK-based multinationals with foreign currency revenues.

Meanwhile, the ratification of a Brexit deal is likely to lift some uncertainty, supporting corporate investment. Higher UK growth may support domestically oriented stocks.

We believe valuations areattractive 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 have recently risen, and look relatively high. The EM macro outlook is supported by policy easing in Chinaand a dovish 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.

Meanwhile, parts of CEEoffer us attractive equity risk premiums.

  • Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout October 2019, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 30 September 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 September 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 October 2019.

 

Source: HSBC Global Asset Management. As at 1 November 2019. The views expressed were held at the time of preparation, and are subject to change.

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