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Investment Outlook: HSBC Perspectives Q2 2024

15 Mar 2024

Willem Sels

Global Chief Investment Officer, HSBC Global Private Banking and Wealth

Favourable macro and structural drivers support the outlook for equities and bonds

As we enter the second quarter, we see a brighter outlook with the Fed rate cuts just around the corner and markets being quite realistic about the timing and pace of those cuts. Moreover, fears of a global recession have faded and US earnings growth has consistently been surprising on the upside.

What does this mean for investors?

Bond investors were delighted to see the strong rally in late 2023 as rates peaked, and the rally should resume in expectation of falling rates in the coming months. At this juncture, with bond yields still elevated, we see a good opportunity to lock in current yields by extending bond duration. Tight credit spreads and market uncertainties around economic growth and geopolitical risks mean that our preference for quality bonds stays firmly in place.

The most significant change we made during Q1 is our more positive view on equities. This is backed by improved earnings and margins thanks to falling costs and expected rate cuts, which encourages more corporates and households to spend and invest. In the US, we expect to see solid earnings growth exceeding 10% in 2024, well above its long-term average of 7%, while earning growth in Asia ex-Japan is expected to be double that of the US.

As China’s stimulus measures will take some time to boost actual economic performance, we stick with our geographical diversification in the region, capturing the rise of ‘AI’ in Asia. AI in this context isn’t artificial intelligence but refers to ASEAN and India, due to their strong fundamentals and domestic drivers. We’re also positive on South Korea on growing demand for memory chips globally, and we’ve recently upgraded Japan thanks to its corporate reforms and the end of its deflationary period. These opportunities led us to raise our global equity allocation to overweight in Q1 by adding in particular to US and Japanese equities.   

Our optimism for equities also lies in the rising structural trends that have reshaped the world in which we live. The use of generative AI (artificial intelligence), robots and innovative technologies promises to be a game changer to all aspects of life, boosting not only technology but also healthcare, communications and other industries that benefit from increased productivity and new product development. Both the US and Asia enjoy strong consumption power supported by wage growth and accumulated savings, and lower interest rates will help fuel the momentum further. The trends of nearshoring of industry and North America’s re-industrialisation are also accretive to job creation and manufacturing in the US.      

Sustainable investing is closely connected with all of these themes. After two years of rising interest rates, the return to policy easing should unlock more spending from companies and governments on the path to a low-emission world. Renewable energy and biodiversity will be top priorities.

Finding the right balance between exploiting opportunities and focusing on quality

In conclusion, we see a number of positive drivers for investors, but our complex world also demands careful attention to risks, including a busy election calendar. While everyone’s eyes will be on the US election in November, historical data seem to be in favour of US equities during an election year. As usual, our four investment themes aim to find the right balance between risks and opportunities, with a focus on quality holding the key.

In this issue, we’ve also included three insightful articles that delve into the need for a higher level of diversification, the booming AI-related opportunities and the importance of building financial resilience to protect our Quality of Life. 

We hope you find our publication worth reading and wish you a successful investment journey.

Investment themes

Regional market outlook

Key data to watch

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Notes
The above comments reflects a 6-month view (relatively short-term) on asset classes for a tactical asset allocation. For a full listing of HSBC’s house view on asset classes and sectors, please refer to our Investment Monthly issued at the beginning of each month.