Investment Weekly: Debasement in the basement?

13 July 2026

Is the debasement trade heading for the basement? It’s been dollar up and gold down in 2026 so far, and that is naturally leading to questions about whether the “debasement trade” – of a weaker dollar and stronger gold – is over.

The reality is that we’re in a world of “deficits forever”, with G7 governments pursuing active fiscal policy. The macro regime is what we call “two shocks and a boom”: a set-up where supply shocks create a spikier inflation profile, even if the CPI trend doesn’t look scary every month.

That plays into the strategic case for gold, where the story isn’t just higher prices, but also policy uncertainty, fiscal dominance risk, and inflation spikiness. However, hedging with the “barbarous relic” now comes with much higher volatility than many investors have been used to.

Meanwhile, dollar strength assumes a more hawkish Federal Reserve. Markets are priced for hawkishness, but the signalling framework has shifted: less forward guidance and more discretion. “Backward guidance” refers to policy reacting to data and data inferences, not promises.

Markets don’t move in straight lines. Over the medium term, the focus should remain on the macro fundamentals. 

CLOs – or collateralised loan obligations – can sound complicated. In fact, they’re a liquid asset class that can even come with a “complexity premium” (an additional yield). Yet the idea is straightforward: take a broad pool of corporate loans and package the cash flows into different layers of risk, allowing investors to pick their risk point.

Given the prospect of higher-for-longer rates, the floating rate nature of CLOs is likely to reinforce their appeal. Some securitised credit specialists see several other demand drivers:

First, CLOs offer a yield premium over similarly rated corporate bonds, with spreads attractive at every risk point relative to corporate credit. Second, credit quality remains resilient: loan defaults remain low at ~1.5%, which is well below long-term averages of 3.0%-4.0%. Third, CLO manager selection is critical, with experienced managers able to adjust portfolios, avoid weaker sectors, and improve risk-adjusted returns. Lastly, CLOs benefit from credit enhancement, which provides a structural cushion against losses, particularly for higher-rated bonds. Nevertheless, their risks should not be ignored.

While AI capex may pay off over time, today’s spending can weigh on future reported earnings if anticipated growth disappoints or, worse, rapid obsolescence sets in.

The key first half takeaway is that Frontier markets have lived up to their low volatility track record. They continue to offer discounted valuations, strong earnings momentum and differentiated return drivers.

As investors search for portfolio resilience, select hedge fund strategies can help “diversify the diversifiers”.

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. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, FactSet. Data as at 7.30am UK time 10 July 2026.

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. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: HSBC Asset Management. Data as at 7.30am UK time 10 July 2026.

Global equities came under pressure as oil prices rose amid renewed geopolitical tensions in the Middle East. In the US, major indices traded without clear direction ahead of the Q2 earnings season: the S&P 500 and Nasdaq advanced as semiconductor shares rebounded, while the Dow Jones Industrial Average slipped and the small-cap Russell 2000 was broadly flat. European bourses fell across the board, while Asian equities were mixed. The Hang Seng led regional gains, while the Nikkei 225 declined and the Kospi extended its pullback in choppy trading amid concerns about the durability of the AI-led tech rally. In rates, higher oil prices rekindled global inflation worries, prompting a modest bear-steepening in the US Treasury curve and a broad rise in European sovereign yields. In FX, most major currencies strengthened against the US dollar.