Expert: Hugo Thompson, Multi-Asset Investment Specialist, HSBC Asset Management Facilitator: Ben MacGregor, Director Client Development, Savanta
Headlines:
- HSBC's projections and positioning strategies for the next 12 months emphasized the easing of recession concerns, the anticipation of interest rate cuts in the second half of the year, and the potential for growth in emerging markets like Japan, India, and Taiwan
- Portfolio diversification, currency hedging, political implications, and the evolving global economic dynamics were discussed, as well as the importance of adapting investment strategies to align with emerging trends and market shifts
Context:
This session provided a detailed review of market performance in 2023 and so far in 2024, highlighting the strong returns in global equity markets in 2023, driven by robust economic growth, and positive returns from fixed income markets, benefiting from declining inflation. In 2024 equity markets continued their upward trajectory while fixed income markets experienced a pullback due to interest rate cut expectations being pushed back.
HSBC's central scenario for the next 12 months involves positive economic growth, with the strong performance of the US, Japanese, and Chinese economies counteracting potential weaknesses in parts of Europe and the UK. Interest rate cuts are expected in the second half of the year, driven by declining inflation. This outlook favours fixed income investments, particularly in the UK and European bond markets. Equity markets are also projected to deliver positive returns, but with a selective approach focused on sectors and regions well-positioned for emerging trends like technology innovation, evolving societal dynamics, and the green transition.
To manage risks and capitalize on opportunities, HSBC employs a scenario analysis approach. This involves considering potential downside risks, such as negative supply-side shocks leading to inflation spikes, and upside scenarios, like sustained robust economic growth. Hedging strategies, including currency plays, commodities, and gold, are discussed as potential tools for mitigating risks and capturing upside potential. HSBC's portfolio positioning is guided by quantitative signals and systematic processes, aiming to identify market inefficiencies and make data-driven decisions.
Discussions covered a range of topics, including currency hedging strategies, the impact of geopolitical events on markets, the role of bonds as risk reducers in portfolios, and the potential for emerging market currencies to gain prominence.
Key takeaways:
- Consider introducing commodities and gold into portfolios to hedge against potential disinflationary forces and market volatility
- Evaluate the potential benefits of diversifying away from UK equities for UK-domiciled clients, given their existing exposure to the UK economy
- Assess the feasibility of incorporating emerging market currencies and bonds into portfolios to capitalize on potential growth opportunities in regions like Japan, India, and Taiwan
- Review and adapt investment strategies to align with emerging trends, such as the green transition, technology innovation, and evolving societal dynamics
- Explore the use of quantitative signals and systematic processes to identify market inefficiencies and make data-driven investment decisions
- Monitor the potential impact of geopolitical events and supply-side shocks on inflation and interest rates, and adjust portfolio positioning accordingly
