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Investment Monthly: Earnings support risk assets despite potential rate cut delays

2 May 2024

Willem Sels

Global Chief Investment Officer, HSBC Global Private Banking and Wealth

Lucia Ku 

Global Head of Wealth Insights, HSBC Wealth and Personal Banking

Key takeaways

  • As markets are now pricing in a delayed and slower Fed rate cut path due to  sticky US inflation and a more hawkish Fed tone, we continue to deploy cash in bonds by locking in the current attractive yields from major government bonds and investment grade credit amid geopolitical uncertainties.
  • Thanks to strong earnings and a resilient cyclical outlook in the US, we continue to adopt a pro-cyclical stance, broadening our exposure to IT, communications, consumer discretionary, financials, industrials and healthcare. In Europe, higher wages and good performance from European consumer discretionary companies, with half of the sector’s revenue coming from the US, support our upgrade of the sector to overweight. 
  • In Asia, we continue to diversify our exposure into Japan, India, Indonesia and South Korea. Robust industrial production and supporting policies in India and China warrant an upgrade of Asian industrials to overweight. Given strong wage growth, a sustained reflationary trend and an uptick of core inflation (excluding fresh food) forecast, we now expect a hike to 0.25% in Q3 2024 by the Bank of Japan. We remain bullish on Japanese equities.

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