Source: Bloomberg, HSBC Global Private Banking as at 29 July 2022
1. What is the earnings outlook for Q2?
Source: Bloomberg, HSBC Global Private Banking as at 29 July 2022
2. Are US and Europe heading into recession?
Source: Bloomberg, HSBC Global Private Banking as at 17 July 2022.
Past performance is not a reliable indicator of future performance.
3. What are the opportunities and challenges in Asia?
Source: Bloomberg, HSBC Global Private Banking as at 12 July 2022. MXCN – MSCI China Index. Past performance is not a reliable indicator of future performance.
Our latest house view on various asset classes
Uncertainty around the path of inflation, central bank policy and earnings remains high supporting a neutral stance.
We like the diversity and quality character of US stocks. Growth will slow but remains resilient due to a tight labour market. We look for companies with strong market positions and healthy balance sheets.
Attractively valued but economic growth is challenged. High cost of living weighs on consumption.
ECB tightening, high energy prices and the region’s geographical proximity to the Ukraine war are key challenges.
Autos and industrials are hit by supply chain issues but capital goods see good demand.
Fund outflows continue as concerns over Fed tightening, global growth slowdown and geopolitical tensions linger. We prefer EM Asia equities due to the region’s resilient domestic fundamentals and more benign growth-inflation outlook.
The region is impacted by a refugee crisis while high energy prices may dampen growth.
Commodity exposure is a tailwind but risks around rate hikes and politics remain.
The region remains relatively resilient thanks to lower inflation pressure and therefore fewer rate hikes than elsewhere but slower demand for technology products is a headwind.
The credit issues in the property sector, worsening global demand outlook, lingering concerns over COVID lockdowns and weak consumption remain headwinds. Valuations remain reasonable and pro-growth policies are key drivers.
H2 growth is likely to moderate on rising oil prices, weaker consumer sentiment and declining exports.
Economic reopening and attractive valuations are key drivers for an economic rebound. The second half of the consumption vouchers in August and potential easing quarantine measures in discussion will boost consumption.
Singapore equities have performed well but valuations are not cheap anymore and the financial sector has seen more volatility. We take profits and move to neutral.
Domestic consumption has become the key driver to the local economy with external demand remaining weak.
The market is challenged by weaker global demand for consumer electronics products and supply chain issues.
Although yields have backed up, we see better opportunities for returns elsewhere.
As markets have been reducing rate hike expectations, yields have dropped somewhat, but this should not continue.
With inflation at the highest level in 40 years, Gilt volatility may remain elevated.
Rising inflation has resulted in a more hawkish ECB which surprised the markets with a 0.5% hike in July and brought an end to a regime of negative rates but current absolute yield levels remain unattractive.
The ultra loose monetary policy and a weaker Yen should keep the longer-end of the government bond segment steep.
Select opportunities exist but some EM countries are hiking rates and USD remains strong.
Amid higher Treasury volatility, we still find yield but remain selective.
Amid uncertainty around growth and profits, we prefer investment grade over high yield and see attractive opportunities in short-to-medium dated investment grade following the back-up in yields.
The flat yield curve does not provide sufficient returns to extend duration. A short-to-medium term is preferred.
The recent cheapening of Eurozone credit represents an opportunity for buy-and-hold investors, while GBP credit has proven to be relatively resilient. We emphasise however a preference for short-to-medium dated quality issuers.
Asia credit offers attractive carry opportunities and stays relatively resilient to the energy supply shock. We prefer quality issuers in Indonesian hard currency bonds, Chinese SOEs, Chinese financials, etc.
We favour investment grade over high yield due to concerns over spread widening amid slowing growth.
While US high-yield companies still enjoy solid credit fundamentals and low default rates, tightening financial conditions and faster Fed fund rate hikes create downside risks.
European high yield remains vulnerable to the developments of the Ukraine war and its impact on energy provisioning. Spreads underperform on recession concerns.
Asia high yield is more resilient within the HY universe thanks to its more diversified economies and supportive domestic policies. We stay cautious on China property credit and prefer state-owned developers with strong liquidity.
Despite high inflation and market volatility, we don’t foresee much upside due to rising rates and a strong USD.
High price levels reflect supply concerns but demand is starting to decline. We foresee volatile sideways trading.
Global and regional sector views based on a 6-month horizon
Inflation remains a headwind for demand with rising financing and energy costs hurting consumer sentiment. Margins remain under pressure from same factors plus labour shortages. Luxury goods segment remains resilient. Automakers are still suffering from supply and production issues but offer attractive valuations.
Rising inflation is driving interest rates higher which is positive for lenders (e.g. retail banks). Investment banking and/or brokerage activities have slowed. Volatile markets have impacted fee income for asset managers. As these challenges are particularly acute in Europe, we downgrade the sector to underweight.
Despite high input costs, order books and supply issues are improving. Valuations are attractive to value investors who are less bearish on the economy and the potential recovery in production, and the expansion/upgrading in manufacturing facilities with a focus on automation. Cyclical risks may weigh on activity though.
Valuations of select large-cap IT are attractive following recent pull-backs. We remain positive on its superior growth prospects as digitalisation, electrification and automation drive long-term, above-average growth for the next decade. We prefer large-cap companies with strong cash-generative businesses and market positions.
The media & entertainment industry remains challenged, while the telecoms industry benefits from steady cash flows and growth from increased data usage as more activity shifts on-line and business digitises. Investments in telecoms infrastructure hardware remain buoyant.
Commodity prices seem to indicate softer demand particularly from China in H2. We’ve become cautious with mining stocks. Higher energy and oil/gas feedstock prices could weigh on chemicals and construction materials. The sector trades at the lowest valuation relative to others, but growth prospects may be peaking.
Private residential real estate is supported by high savings and historically low interest rates, while demand for commercial real estate is low as corporates look to reduce office space and retail moves online. Rising interest rates and softening demand as the European economy stalls has triggered our downgrade.
The sector contains many quality stocks with good dividend yields. However, valuations are somewhat elevated, so we prefer companies with strong brands and/or pricing power which allow them to protect margins and earnings as inflationary pressures mount.
Geopolitical uncertainties, low inventories and supply-demand imbalances continue to drive prices higher. We expect energy prices to either stabilise at these elevated levels or push higher. Chronic under-investment is likely to support prices in the medium term despite the energy transition gaining momentum.
Pharma stocks are characterised by strong cash flows and resilient business models somewhat insulated from the ravages of inflation and cyclicality, while offering decent dividend yields. Medical technology sector should benefit from pent-up demand for elective surgical procedures in 2022/2023. The biotechnology sector provides more speculative investment opportunities with their innovative medicines.
Renewable stocks are again attracting attention after stock prices and valuations pulled back significantly from overly optimistic levels. Caution is still required as companies may not be able to pass on rising energy prices which may impact margins negatively.
“Overweight” implies a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.
“Underweight” implies a negative tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.
“Neutral” implies neither a particularly negative nor a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.
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