10 August 2026
Key takeaways
-
Emerging market (EM) local-currency bonds delivered strong returns over the past four years, helped by improving policy credibility, attractive real yields, and resilient macroeconomic backdrops. But year-to-date momentum has weakened.
-
Two years ago, global markets were jolted by a surge in the Japanese yen – triggered by authorities intervening to support the currency in FX markets, plus a surprise shift in policy rate expectations. Recently, Japan’s authorities stepped in again to support the yen – this time in coordination with the US – sending a strong market signal.
-
A recent pick-up in oil price volatility has kept the Middle East conflict front of mind for markets. While oil remains the most visible channel, a big question for credit investors continues to be how and where the disruption could lead to supply shortages across industries and supply chains.
Chart of the week – Riding the capex wave
After a recent wobble, the S&P 500 is back at fresh highs as investors lean into the view that strong earnings can be sustained by the AI investment boom. The question now is whether the fundamentals can keep up with the optimism.
On the macro side, the AI capex impulse is shifting. In cash terms, US computing and peripheral equipment investment rose at a pace of around 25% annualised in Q2. But this reflected a surge in prices – real, inflation-adjusted spending fell slightly. This suggests that the incremental boost to real GDP from compute-heavy capex may have peaked. More encouragingly, there are signs that AI demand is broadening, with industrial equipment investment seeing a strong quarter.
In markets, Q2 earnings have surprised sharply to the upside. Year-on-year S&P 500 profit growth is tracking around 47% (for results reported so far), roughly double expectations at the end of June. But investors are being selective: firms translating AI spend into visible revenues are being rewarded, while those hiking investment at the expense of free cash flow – without a clear path to returns – are being marked down. Credit markets are also worth watching. Hyperscalers’ increasing use of debt to fund capex has lifted issuance meaningfully, with funding needs likely to remain substantial in 2027. That raises the risk of periodic market “indigestion” and the potential for bouts of spread widening and volatility.
For now, AI capex remains a key driver of macro and market momentum, but the balance of risks is shifting. In a
K-shaped economy, signs that parts of the AI capex contribution are peaking could potentially crimp growth momentum. While in stocks, a focus on execution and returns means that firms face the dual pressures of delivering returns on investment while fending off competition from lower-cost AI models. As the market focus moves from “build” to “payback”, further volatility is likely.
Market Spotlight
Debt that builds
The world is in an infrastructure boom: the energy transition, surging electricity demand, AI, and digitalisation are all driving an unprecedented need for investment. From renewable power grids and battery storage to hyperscale data centres and fibre networks, the assets underpinning tomorrow's economy need trillions in funding.
Traditionally, big infrastructure projects have relied heavily on debt financing. However, as banks have become more selective about long-duration lending and infrastructure spending has risen, private capital has stepped in. In recent years, investors have tended to focus on infrastructure equity to build sector exposure, leaving debt relatively under-allocated. But that imbalance – and a relative shortage of long-term lending capital – has created opportunities for lenders to negotiate stronger financing structures, attractive yields, and better downside protection.
Today, infrastructure debt is no longer confined to long-dated, investment-grade loans, and benefits from flexible strategies across duration and risk. For investors, it combines structural growth with increasing flexibility, offering diversified ways to access one of the defining investment themes of the coming decades.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. The level of yield is not guaranteed and may rise or fall in the future. Past performance does not predict future returns. For informational purposes only and should not be construed as a recommendation to invest in the specific company, country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: HSBC Asset Management, Factset, Bloomberg, Macrobond. Data as at 7.30am UK time 07 August 2026.
Lens on...
Mind the valuation gap
Emerging market (EM) local-currency bonds delivered strong returns over the past four years, helped by improving policy credibility, attractive real yields, and resilient macroeconomic backdrops.
But year-to-date momentum has weakened. Greater uncertainty over the Federal Reserve’s policy path has contributed to higher long-dated US Treasury yields, while the gap between EM and US real interest rates has narrowed in many markets. This reduces the space for further policy easing, limiting the upside potential for EM bond performance.
The good news is several Latin American markets, including Brazil and Mexico, entered this cycle with strong inflation-fighting credentials after tightening policy early in 2021-2022, giving their central banks greater flexibility as inflation moderates. By contrast, parts of Asia, notably Thailand and the Philippines, face a more difficult policy trade-off as inflation risks remain elevated.
The strategic case for EM local debt remains intact, but the next phase of the cycle should reward selectivity, with future performance likely to depend more on country selection than broad exposure.
Another yen-tervention
Two years ago, global markets were jolted by a surge in the Japanese yen – triggered by authorities intervening to support the currency in FX markets, plus a surprise shift in policy rate expectations. This caused a sharp unwind of the yen “carry trade” – where traders borrow in yen to buy higher-yielding overseas assets – and it sparked widespread volatility.
Recently, Japan’s authorities stepped in again to support the yen – this time in coordination with the US – sending a strong market signal. But the backdrop today looks less supportive of a sustained yen recovery than it did in 2024. Despite firmer inflation, the Bank of Japan has been cautious about signalling a faster tightening path. By contrast, persistent US inflation and more hawkish Fed signalling have pushed expectations towards higher US rates.
FX intervention can boost the currency in the near term. And a significant net short positioning of the yen implies risks of a sudden appreciation. But for the time being, rate differentials fundamentally weigh on the currency’s outlook.
Chain reactions
A recent pick-up in oil price volatility has kept the Middle East conflict front of mind for markets. While oil remains the most visible channel, a big question for credit investors continues to be how and where the disruption could lead to supply shortages across industries and supply chains.
Key areas of concern have been petrochemical feedstocks, fertilisers, and industrial gases – all of which sit quietly in the plumbing of global industry. For investors, the risk is that prolonged disruption pushes the risk from short-term earnings volatility to longer-term pressures on operational continuity.
Relative sectors winners and losers have already emerged. Some energy firms have enjoyed higher prices and margins, while others in chemicals, autos, metals, and manufacturing have come under pressure. Geographically, parts of Asia look particularly exposed given the region’s dependence on downstream products imported from the Middle East. More broadly, if disruption persists, the message for credit investors is clear: look beyond short-term earnings sensitivity and focus on balance-sheet resilience, pricing power, supply-chain flexibility and liquidity.
Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, FactSet. Data as at 7.30am UK time 07 August 2026.
Key Events and Data Releases
| Last week |
This week
For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: HSBC Asset Management. Data as at 7.30am UK time 07 August 2026.
Market review
Global equity markets got off to a positive start last week, with a rebound in tech and AI-related stocks following recent bouts of price volatility. Renewed hopes of progress towards a resolution to the Middle East conflict and supply disruptions through the Strait of Hormuz buoyed sentiment, with oil prices falling. A strong performance in US stocks was driven by further solid results from the ongoing Q2 earnings season. Optimism was also felt in European markets, while performance was more mixed across Asia. The Nikkei 225 index traded higher following the recent intervention by Japanese and US authorities to support the yen. In fixed income, long-end US Treasury yields began the week approaching multi-year highs, but later pulled back ahead of key US employment reports scheduled for Friday and CPI data due this week.
Share
This document or video is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document or video is distributed and/or made available by HSBC Bank (China) Company Limited, HSBC Bank (Singapore) Limited, HSBC Bank Middle East Limited (UAE), HSBC UK Bank Plc, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (20080100642 1 (807705-X)), HSBC Bank (Taiwan) Limited, HSBC Bank plc, Jersey Branch, HSBC Bank plc, Guernsey Branch, HSBC Bank plc in the Isle of Man, HSBC Continental Europe, Greece, The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank (Vietnam) Limited, PT Bank HSBC Indonesia (HBID), HSBC Bank (Uruguay) S.A. (HSBC Uruguay is authorised and oversought by Banco Central del Uruguay), The Hongkong and Shanghai Banking Corporation Limited – Philippine Branch, HSBC Investment and Insurance Brokerage, Philippines Inc, HSBC Insurance Brokerage Company Limited, HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group (collectively, the “Distributors”) and HSBC Bank Middle East Limited Qatar Branch, P.O. Box 57, Doha, Qatar (regulated by Qatar Central Bank for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority) to their respective clients. This document or video is for general circulation and information purposes only.
The contents of this document or video may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document or video must not be distributed in any jurisdiction where its distribution is unlawful. All non-authorised reproduction or use of this document or video will be the responsibility of the user and may lead to legal proceedings. The material contained in this document or video is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document or video may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HBAP and the Distributors do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document or video has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed are based on the HSBC Global Investment Committee at the time of preparation and are subject to change at any time. These views may not necessarily indicate HSBC Asset Management‘s current portfolios’ composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients’ objectives, risk preferences, time horizon, and market liquidity.
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document or video is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investments are subject to market risks, read all investment related documents carefully.
This document or video provides a high-level overview of the recent economic environment and has been prepared for information purposes only. The views presented are those of HBAP and are based on HBAP’s global views and may not necessarily align with the Distributors’ local views. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. It is not intended to provide and should not be relied on for accounting, legal or tax advice. Before you make any investment decision, you may wish to consult an independent financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. You are advised to obtain appropriate professional advice where necessary.
The accuracy and/or completeness of any third-party information obtained from sources which we believe to be reliable might have not been independently verified, hence customers must seek several sources prior to making investment decisions.
The following statement is only applicable to HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group with regard to how the publication is distributed to its customers: This publication is distributed by Wealth Insights of HSBC México, and its objective is for informational purposes only and should not be interpreted as an offer or invitation to buy or sell any security related to financial instruments, investments or other financial product. This communication is not intended to contain an exhaustive description of the considerations that may be important in making a decision to make any change and/or modification to any product, and what is contained or reflected in this report does not constitute, and is not intended to constitute, nor should it be construed as advice, investment advice or a recommendation, offer or solicitation to buy or sell any service, product, security, merchandise, currency or any other asset.
Receiving parties should not consider this document as a substitute for their own judgment. The past performance of the securities or financial instruments mentioned herein is not necessarily indicative of future results. All information, as well as prices indicated, are subject to change without prior notice; Wealth Insights of HSBC Mexico is not obliged to update or keep it current or to give any notification in the event that the information presented here undergoes any update or change. The securities and investment products described herein may not be suitable for sale in all jurisdictions or may not be suitable for some categories of investors.
The information contained in this communication is derived from a variety of sources deemed reliable; however, its accuracy or completeness cannot be guaranteed. HSBC México will not be responsible for any loss or damage of any kind that may arise from transmission errors, inaccuracies, omissions, changes in market factors or conditions, or any other circumstance beyond the control of HSBC. Different HSBC legal entities may carry out distribution of Wealth Insights internationally in accordance with local regulatory requirements.
Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”): HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India does not distribute or refer investment products to those persons who are either the citizens or residents of United States of America (USA), Canada or any other jurisdiction where such distribution or referral would be contrary to law or regulation.
HSBC India is an AMFI-registered Mutual Fund Distributor and an AMFI-registered Specialized Investment Fund (SIF) Distributor. HSBC India distributes select mutual fund schemes and SIF strategies of empaneled Asset Management Companies, and acts as a referrer of other third-party investment products. Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. AMFI-registered Mutual Fund Distributor | Date of Initial Registration: 19 Feb 2002 | ARN-0022 I Validity of ARN: 18 Feb 2027. AMFI-registered SIF Distributor I Date of initial registration: 27 Oct 2025 | ARN-0022 I Validity of ARN: 26 Oct 2028.
HSBC India will receive commission from HSBC Asset Management (India) Private Limited, in its capacity as a AMFI registered mutual fund distributor of HSBC Mutual Fund. The Sponsor of HSBC Mutual Fund is HSBC Securities and Capital Markets (India) Private Limited (HSCI), a member of the HSBC Group. Please note that HSBC India and the Sponsor being part of the HSBC Group, may give rise to real, perceived, or potential conflicts of interest. HSBC India has a policy in place to identify, prevent and manage such conflict of interest. For more information related to investments in the securities market, please visit the SEBI Investor Website: https://investor.sebi.gov.in/ and the SEBI Saa₹thi Mobile App.
The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guarantee on the management or operation performance of the trust business.
The following statement is only applicable to PT Bank HSBC Indonesia (“HBID”): HBID is licensed and supervised by Indonesia Financial Services Authority (“OJK”). Investment products that are offered in HBID are third party products, HBID is a selling agent for third party products such as Mutual Funds and Bonds. HBID and HSBC Group (HSBC Holdings Plc and its subsidiaries and associates company or any of its branches) do not guarantee the underlying investment, principal or return on customer’s investment. You must read and understand the investment policy of each investment product to see if a product contains ESG and sustainability elements and is classified as an ESG and sustainable investment. Investment in Mutual Funds and Bonds are not covered by the deposit insurance program of the Indonesian Deposit Insurance Corporation (“LPS”).
Important information on ESG and sustainable investing
Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.
In broad terms “ESG and sustainable investing” products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes. There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don’t consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks. In addition, there is no standard definition of, or measurement criteria for, ESG and Sustainable investing or the impact of ESG and Sustainable investing products. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.
HSBC may rely on measurement criteria devised and reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved. ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how investments can be categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.
THE CONTENTS OF THIS DOCUMENT OR VIDEO HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG OR ANY OTHER JURISDICTION. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT OR VIDEO. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT OR VIDEO, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.
© Copyright 2026. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.
No part of this document or video may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.