Covid-19 is a very significant challenge for the global economy. But market pricing is broadly consistent with our baseline of a “swoosh” style recovery. Substantial policy easing has reduced downside tail risks
US indices exposure to big tech companies and quality names is beneficial in our view
The EU’s new joint recovery fund can help support the medium-term growth prospects of more vulnerable European economies
We also think the fund should help diminish the risk of more economically fragile member states exiting the Eurozone, which can help compress the “political risk premium” we believe is embedded in the pricing of European risk assets
Furthermore, the ECB has so far been proactive and innovative in its policy approach
Policy support has been substantial. Investors may be attracted to the exposure of UK indices to cyclical sectors as the “swoosh” recovery progresses. But the balance of risks points to a neutral position
Japanese equities are attractively valued but we think there are challenges in unlocking this value potential. Economic growth is structurally weak and Bank of Japan policy space is constrained
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 headwind to already weak growth momentum in Latin America and Russia. Many EM economies (mainly outside of Asia) have limited capacity to manage the current health and economic crises
Source: HSBC Global Asset Management. As at 1 October 2020. The views expressed were held at the time of preparation, and are subject to change
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