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Investment Monthly: Monetary policy divergence is driving market sentiment

3 Jul 2023

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

  • The Fed paused in June to monitor the effect of rate hikes while the BoE and ECB continued their inflation fight with more hikes. This policy divergence supports our preference for US equities over Eurozone and UK equities. Technology is also benefitting from US peak rates and the great enthusiasm for AI. Yet, short-term consolidation is likely as equity valuations have risen.
  • Despite improved performance, global high yield is less preferred due to their relatively high valuations and tighter credit conditions. While yields on cash and short-term bonds are tempting, they may miss returns during periods of looser monetary policy, when yields and deposit rates often fall. We continue to favour global IG bonds with medium maturities to lock in attractive yields.
  • We expect the Chinese government to roll out further stimulus measures to achieve a broader, sustainable recovery. As the drag on the property sector continues, we have lowered our GDP forecast from 6.3% to 5.3%, but remain positive on China’s earnings outlook and valuations. We upgrade South Korean equities to neutral, and Asian IT to overweight to reflect the global AI-backed tech stocks boom. The upgrades will help broaden our Asian exposure

Talking Points

Each month, we discuss 3 key issues facing investors

Asset Class Views

Our latest house view on various asset classes

Sector Views

Global and regional sector views based on a 6-month horizon

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