21 July 2025
Last week’s raft of economic data out of China delivered a mixed picture, with continuing sector divergence, domestic supply-demand imbalances, and muted inflation. Among the positives, exports have been resilient, and industrial output has seen solid growth momentum, with high-tech sectors leading the way. Frontloaded fiscal stimulus drove a rebound in the credit impulse (see chart). But retail sales softened after a strong May, and property sector activity weakened. Overall, China’s real GDP growth held up at 5.2% year-on-year in Q2. But nominal growth fell to 3.9% year-on-year from 4.6% in the previous quarter, with the GDP deflator remaining negative.
What do we make of this? Apart from the flagging property sector, robust first-half activity suggests no urgency for new policy stimulus, although further support is still likely given the uneven recovery and supply-demand imbalances. Meanwhile, the trade outlook faces the risk of a global slowdown, US policy uncertainty, and geopolitical tensions.
From here, generally stable conditions could give policymakers space to focus on structural priorities and long-term strategies for resilience, rebalancing, and quality growth. On top of trade-in subsidies, we expect more policy support for service consumption and the social safety net, while on the supply-side, a policy push to curb excessive competition in some sectors has intensified recently. There could be further efforts to stabilise the property sector. With sectors like technology now building momentum, this continuing policy boost can potentially drive returns both locally and across other emerging markets.
It’s been a game of two halves for private equity investors in 2025. Private equity deal flow started well in the first quarter, continuing the 2024 trend of rising dealmaking and exits (asset sales). The anticipation had been that a pro-business Trump administration could provide a boost to private equity activity. However, the introduction of Liberation Day tariffs and policy uncertainty have put pressure on dealmaking. Preliminary second quarter figures from Pitchbook show estimated global deal value down 15.3% compared to the first quarter, and marginally down year-on-year. Meanwhile, exits, which started the year well, have been challenged by a quieter M&A and IPO market.
On a positive note, exits are happening at attractive multiples, highlighting the ability of PE general partners (GPs) to generate value despite market challenges. Bigger picture, private equity has historically achieved strong returns after challenging phases, such as after the global financial crisis and the pandemic. GPs can often purchase companies at lower valuations and then benefit from rebounds in the market environment. There is dry powder waiting to be deployed once market conditions settle, confidence returns, and valuation gaps narrow.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.
Source: HSBC Asset Management, Bloomberg. Data as at 7.30am UK time 18 July 2025.
2025 has been a bumpy ride for US stocks, with trade policy uncertainty near record highs. In periods of uncertainty, investors crave safety, which can favour Quality stocks that typically have higher gross profit margins, superior cashflows, and healthier balance sheets versus sector peers. With higher tariff rates, company input costs are likely to rise – so, exposure to firms with higher margins can provide a buffer. That makes it surprising that Quality in the US – where margins are particularly under threat – has underperformed more than in non-US markets such as Europe and emerging markets this year. Data provided by some Quant Equity Research analysts show US Quality lagging the S&P 500 by 2%, while Momentum has delivered the strongest return. |
Quality is rarely cheap given its resilience, and it performed well in 2024, which might explain its recent weak performance. But this has opened up some decent valuation opportunities in the factor. Against a backdrop of still elevated economic and geopolitical risks, there could be more reason to like it.
Over the past couple of years, the gap between longer- and shorter-dated US Treasury yields has been widening. This so called “curve steepening” has come amid gradual Fed easing and a higher term premium – the extra compensation that investors demand for holding longer-term bonds (usually because of inflation and interest rate uncertainty). Some fixed income experts think further curve steepening is possible. The gap between 10 and two-year yields is below its long-term average. With US deficits projected to remain around 6% to 7% of GDP in the coming years, a higher supply of Treasuries could put upward pressure on long-end yields. US tariff policies have also increased inflation uncertainty. |
Curve steepening should also be supported from the short end once the Fed restarts monetary easing, especially if a weaker economy pushes the Fed to cut rates by more than market currently expects. Meanwhile political interference with the Fed, for example pushing for more dovish policy, could not only push shorter-term yields lower, but also longer-end yields higher as investors question the Fed’s reliability in tacking inflation.
Vietnam became the first Asian economy to agree an outline post-Liberation Day trade deal with the US in early July. While negotiations continue, the agreement looks set to cut the tariff on Vietnamese imports to the US to 20% – down from the 46% reciprocal rate that had been on the table. It looks possible that goods routed – or transhipped – through Vietnam to the US from other countries will attract a higher tariff rate. Vietnam has become a fast-growing frontier manufacturing hub in recent years. Despite global policy uncertainty, this export-led development contributed to year-on-year GDP growth of 7.5% in the first half of 2025, and has led the highest levels of foreign direct investment since 2009. |
Vietnamese stocks rallied in response to the trade deal, contributing to a pick-up in the MSCI Fronter index given the country’s significant weighting in it. The Frontier index is outperforming both Emerging and World indices this year.
Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.
Source: HSBC Asset Management. Macrobond, Bloomberg, Data as at 7.30am UK time 18 July 2025.
Source: HSBC Asset Management. Data as at 7.30am UK time 18 July 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.
Risk markets were stable despite persistent global trade uncertainties. The US dollar gained against major currencies. Long-end US Treasury yields moved higher, driven by increased signs of tariff-related rises in goods prices and stronger-than-expected retail sales data, while German Bund yields edged lower. US IG and HY credit spreads remained compressed. In equity markets, US stocks advanced as investors assessed Q2 earnings, with the tech-heavy Nasdaq outperforming. The Euro Stoxx 50 index was range-bound amid investor concerns over lingering US-eurozone trade tensions. In Asia, Japan’s Nikkei 225 rose modestly ahead of July’s upper house elections. Hong Kong’s Hang Seng rallied, propelled by tech stocks’ strong performance. Benchmark indices in Thailand and Indonesia surged, but India’s Sensex index weakened. In commodities, oil and gold prices consolidated. |
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