Top of main content

House views

06/05/2020

Macro Outlook

  • Governments have imposed hugely restrictive measures to suppress COVID-19. Economic activity has fallen at a precipitous pace
  • March activity data across developed markets fell at an alarming rate. Early data for April show further, pronounced weakness
  • Q2 is likely to see double-digit declines in GDP (not annualised) across developed economies. Consensus growth forecasts for 2020 continue to look too optimistic at this stage
  • China’s economy contracted by 9.8% q/q in Q1. Domestic activity is now recovering as the government eases restrictions, but the economy continues to face severe external headwinds
  • The path for the global economy through 2020 is highly dependent on governments’ willingness to ease virus-suppression policies

Investment views

While the COVID-19 pandemic represents a very significant challenge for the global economy, the recent sell-off has materially increased our measure of prospective returns

Our measure of the global equity risk premium (excess return over cash) now looks very attractive. After the recent sharp falls in developed market government bond yields, the relative attractiveness of equities over bonds has increased further

A much looser global policy setting means there is scope for a recovery in risk assets as global economic conditions stabilise 

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

Valuations have improved substantially in our opinion. Current market pricing offers buying opportunities for investors with a long-term investment horizon

The repricing of eurozone equities experienced in March has created very attractive prospective risk-adjusted returns

The ECB has 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) has substantially increased as a result of the sell-off in March and remains comfortably above that for other developed market (DM) equities

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

Valuations are very attractive, especially since the sharp sell-off in March

Japanese authorities have implemented policy easing, including a sizeable fiscal stimulus package

EM Asian markets can benefit from an China’s growth recovery and further policy actions

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

The recent sharp fall in oil and other 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

  • Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout April 2020, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 31 March 2020, 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 31 March 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 30 April 2020.

 

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

Discover more fresh perspectives