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House views

06/11/2020
Coronavirus
Equities
Europe

Macro Outlook

  • The “swoosh recovery” continues, with developed markets (DM) likely to reach pre-crisis levels of activity in late 2021/early 2022
  • However, after the initial surge, growth is now set to moderate as economies enter the next phase of the recovery: the “flatter part of the swoosh”
  • After the crisis, there are relative winners (China, industrialised Asia) and relative losers (emerging markets ex Asia, smaller oil exporters, frontier economies, and the UK)
  • The global economy needs ongoing policy support. There is little risk of inflation in the near term

Investment views

Covid-19 is a major challenge for the global economy. But market pricing is broadly consistent with our baseline scenario of a “swoosh” style recovery. Substantial policy easing has reduced down-side tail risks

US indices’ exposure to big tech companies and quality names is beneficial in our view. Cyclical parts of the market could benefit from
fresh government stimulus measures

Policy progress has been substantial, particularly with the EU’s new joint recovery fund. Investors may also reach for potential gains outside of the US amid the ongoing “swoosh recovery”

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 challen-ges 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

  • Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout October 2020, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 30 September 2020, our portfolio optimisation process and actual portfolio positions.
  • Icons:⬆ View on this asset class has been upgraded     No change   ⬇View on this asset class has been downgraded.
  • 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.
  • “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.
  • “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.
  • “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 or 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 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 October 2020.

 

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

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