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Investment Outlook: HSBC Perspectives Q3 2024

23 May 2024

Willem Sels

Global Chief Investment Officer, HSBC Global Private Banking and Wealth

Broadening global cyclical and rate tailwinds provide opportunities to put cash to work

Market expectations for Fed rate cuts have been on a roller-coaster ride, swinging from too enthusiastic in Q1 to quite conservative at the time of writing as inflation has proved stickier than expected. As rate cuts are just a matter of time, we lock in current attractive bond yields. In equities, we see a richer set of opportunities across geographies and sectors, driven by broadening global cyclical and rate tailwinds.

What does this mean for investors?

Looking ahead to the second half of the year, fundamentals remain constructive, supporting our recent move to a more risk-on stance and our upgrades of equities and sectors in a number of markets.

In the US, the higher probability of a soft landing and better-than-expected Q1 earnings give us confidence that equities have further upside. While US equities remain our biggest overweight position, current improvement in cyclical momentum in other countries should foster earnings growth as well, broadening it beyond the US.

Looking beyond the US and technology

Asia should benefit from the improving global outlook and strong domestic tailwinds, which should continue to uphold earnings momentum in India and South Korea. Continental Europe, the UK and Japan meanwhile are also gathering pace and rebounding from the bottom of their economic cycles.

Easing interest rate-related cost pressures are benefitting both corporates and households globally, stimulating more consumption and investment as well as boosting shareholder returns. Structural trends are another key catalyst. The wave of technology and AI-driven innovation promises to raise productivity across industries and boost equity performance beyond technology. We also see opportunities in non-cyclical areas in selected regions, such as healthcare in the US and Europe and utilities in Asia.

Moving cash into bonds to lock in yields now

Looking at the underlying causes of US inflation and how long rates have already been in restrictive territory compared with previous cycles, we maintain our view that the Fed will cut rates this year, most likely in September. However, the Bank of England and the ECB should begin moving sooner. As a result, we continue to focus on locking in current bond yields, with a preference for government bonds and USD-denominated investment grade credit, where we see attractive risk-adjusted returns.

Investors should take action now to consider reducing their cash positions and minimise the impact of lower cash returns ahead of the first rate cut. While it makes sense to extend duration to lock in and enjoy high yields for longer, some investors could consider short-dated bonds for shorter-term investment needs.

Sustainability is shaping the way we live, do business and invest. The transition remains a priority for governments and corporates globally, with clean energy and biodiversity gathering most attention in terms of investment, government policies and global governance.

Managing risks without compromising on opportunities

In addition to the ongoing conflict in the Middle East, the upcoming US election will be on investors’ radars in the second half of the year. Historically, markets tend to be volatile in the lead up to the vote and rebound after the result is known. Nevertheless, it’s worth noting that the election outcome may have an impact on areas such as relative sector performance (e.g. energy and financials) and global trade.

This quarter, we’ve also included two feature articles about moving cash into bonds and future consumer trends, which tie in well with our investment themes.

In conclusion, we see the combination of global equity exposure and quality income from bonds as a good way to capture opportunities while managing risks. This can be achieved through a diversified portfolio or a multi-asset strategy with the help of professionals. We hope these insights will help you position your portfolios to achieve your investment goals.

Investment themes

Regional market outlook

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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.