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Investment Monthly: Increasing equity allocation on synchronised policy pivot

5 Apr 2024

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 synchronised dovish messages from the central banks (Fed, ECB and BoE) have reinforced market expectations of rate cuts in June, which are positive for equities. We upgrade Europe ex-UK equities to neutral based on economic fundamentals appearing to have bottomed out. As the pivot should also cap the upside for bond yields, we continue to extend bond duration in major government bonds (7-10 years) and investment grade credit (5-7 years).
  • Long-term fundamentals, strong earnings growth and secular trends continue to drive the US equity rally beyond IT and communications. While US equities tend to perform well before the first rate cut, and in an election year, it’s critical  to stay diversified to mitigate downside risks. A multi-asset strategy may help.
  • The aggressive wage hike of 5.3% from the Shunto wage negotiations should support a more sustainable reflation trend in Japan. Despite putting an end to its negative interest rate policy and yield curve control, the Bank of Japan  emphasised that financial conditions should stay accommodative, making further rate hikes unlikely until end-2024. Together with improved corporate governance and the AI investment boom, we remain positive on Japanese equities.

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

“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.

↑ View on this asset class has been upgraded

↓ View on this asset class has been downgraded

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