HSBC Global Private Banking has just published its investment outlook for the first three months of 2024.
Despite the complex global investment environment, there are
compelling investment opportunities around the world,
according to HSBC Global
Private Banking“s outlook for the first quarter of 2024.
HSBC expects global economic growth to be below normal, but the
US engine will continue to run, thanks to a strong US consumer,
government stimulus supporting investment and innovation in tech
Chinese economic growth is being held back by difficulties
in the property sector, HSBC continued, but more monetary
stimulus and deficit spending should help growth. With Europe
flirting with recession, HSBC maintains its preference for US
stocks and its strong view on the dollar. Overall, HSBC thinks
that those calling for a global recession will again be proven
It also said that rising interest rates were the number one
challenge for bond and stock markets in 2023, as central banks
have kept hiking for longer than expected. “But as inflation is
down markedly, the major western central banks have now paused.
This should help ease rate volatility and support asset
valuations,” Willem Sels, global chief investment officer
at HSBC Global Private Banking, said.
HSBC sees value in quality bonds, following the repricing, and
equity valuations have come down too, providing upside for stocks
that can deliver on earnings expectations. As policy rates stay
high for longer, financing conditions may tighten further, but
the private bank does not expect a credit crunch. Credit spreads
may widen though, and the firm manages this by focusing on
quality – i.e. bonds and stocks of companies with manageable
leverage and strong cash flows – preferably large caps. And, as
the relative value has shifted from the credit to the rate side,
HSBC’s asset allocation also rebalances towards lower risk bonds
(sovereigns and investment grade) from higher risk bonds (high
yield and emerging markets).
HSBC thinks it is important to extend bond duration ahead of
policy easing. Bond investors will gather confidence from the
fact that central banks paused at their most recent meetings.
HSBC lengthens duration ahead of the Fed rate cuts, which the
firm expects to see from the third quarter of 2024. These cuts
will weigh on cash returns but should benefit bonds. HSBC is
overweight in developed market government bonds, with
seven to 10 year maturities, and prefers investment grade
corporates over high yield.
The firm also thinks that it is important to broaden US equity
exposure to benefit from a soft landing. The US economy should
continue to outperform the bearish consensus. High tech
valuations are warranted by strong structural growth in areas
such as generative AI and robots and new energy
transportation. But the resilient economy should support other –
cheaper – sectors too, reflected in HSBC’s North American
re-industrialisation and healthcare innovation themes. The US
consumers’ resilience should benefit its American resilience
theme and strategies with exposure to broad US indices.
Markets will also continue to worry about cyclical, interest rate
and geopolitical risks. A core allocation to private markets and
multi-asset strategies can add diversification, while nimble
hedge funds can take advantage of market volatility, the firm
continued. Volatility strategies can help take a directional view
on volatility or can be used to generate income to stabilise
portfolios’ total returns.
Slow Chinese growth, high rates and a strong dollar should impact
emerging market countries to different degrees, the firm said. So
it looks for markets with positive cyclical momentum and
structural growth stories, with India standing out on both
counts. ASEAN and Mexico are well placed to ride on the supply
chain diversification trend and the growth of middle-class
consumers, the firm added. Given the very low valuations, HSBC
also sees select opportunities in Hong Kong and mainland China
growth leaders in the service consumption, internet, and electric
vehicle sectors. Its Asia high conviction themes tap into all
these topics. After a big repricing that has been seen in the
past 24 months, it’s important to rebalance portfolios, the firm
said. Amid low growth and a policy rate plateau, putting cash to
work in quality assets tends to be the right approach. HSBC’s
strategy for 2024 is to find diverse sources of return and
income, to boost the return potential and manage volatility.
HSBC focuses on quality, resilience and diversification
throughout, preferring Treasuries and investment grade over high
yield; and choosing US, emerging market Asia and Latin American
stocks over Europe; as well as adding hedge funds and tail risk
The firm is consequently underweight in cash and overweight in
fixed Income, with an overweight in developed market (DM)
government bonds, and a preference for investment grade over high
yield. For equities, it is neutral, with an overweight in US,
emerging markets Asia and Latin America stocks. It is underweight
in the eurozone and it is overweight in alternatives, with an
overweight in hedge funds, and keeping core allocations in
private markets and real estate.