While the COVID-19 pandemic represents a very significant challenge for the global economy, the recent sell-off has materially increased our measure of prospective returns
Our measure of the global equity risk premium (excess return over cash) now looks very attractive. After the recent sharp falls in developed market government bond yields, the relative attractiveness of equities over bonds has increased further
A much looser global policy setting means there is scope for a recovery in risk assets as global economic conditions stabilise
US policymakers have acted in a timely and coordinated manner, with the US benefiting from significant economic, medical, and technological resources to fight the outbreak. Corporate earnings have also been outperforming other regions, and exposure to big tech companies has been beneficial
Valuations have improved substantially in our opinion. Current market pricing offers buying opportunities for investors with a long-term investment horizon
The repricing of eurozone equities experienced in March has created very attractive prospective risk-adjusted returns
The ECB has been proactive and innovative in its policy approach to support bank liquidity and lending to the real economy, and has increased asset purchases. The German government has engaged in very significant fiscal easing
The UK equity risk premium (excess return over cash) has substantially increased as a result of the sell-off in March and remains comfortably above that for other developed market (DM) equities
The UK government and the Bank of England have introduced a comprehensive and coordinated package of economic stimulus measures aimed at supporting businesses and employment
Valuations are very attractive, especially since the sharp sell-off in March
Japanese authorities have implemented policy easing, including a sizeable fiscal stimulus package
EM Asian markets can benefit from an China’s growth recovery and further policy actions
Ultra-loose Fed policy and lower oil prices are significant tailwinds to many EM economies
The recent sharp fall in oil and other commodity prices is a major headwind to already weak growth momentum in Latin America and Russia. CEE economies are vulnerable to a manufacturing slowdown in Europe given supply chains
Many EM economies (mainly outside of Asia) have limited capacity to manage the current health and economic crises
An upward sloping (⬆) “Overweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class.
A downward sloping (⬇) “Underweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would) have a negative tilt towards the asset class.
A sideways arrow (➡) “Neutral” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class.
Source: HSBC Global Asset Management. As at 1 May 2020. The views expressed were held at the time of preparation, and are subject to change.