Top of main content

Investment Outlook: HSBC Perspectives Q4 2025

4 September 2025

Willem Sels

Global Chief Investment Officer, HSBC Private Bank and Premier Wealth

Growing optimism as markets gear up for Fed rate cuts

Trade tariffs were undoubtedly the key factor shaping market dynamics in Q3, intertwined with inflation and growing US debt concerns. Yet, they didn’t stop US equity indices from reaching new highs, or Q2 earnings growth from exceeding consensus expectations. Rapid technological innovation deserves much of the credit, and we believe this trend will continue.

While most of the positive drivers for Q3 should remain in force, we may start to see the real impact of tariffs on growth and inflation in the coming quarter. However, we aren’t too worried because we should see the return of US rate cuts, as the Fed shifts its focus from inflation to tackling a mild growth slowdown. Moreover, the US One Big Beautiful Bill Act has ushered in a new phase of tax cuts, and we expect further deregulation to follow.

What does this mean for investors?

Most economic indicators suggest that the increase in US inflation will only be mild and gradual, so the wait for rate cuts will soon be over. Lower rates will help boost economic activity and corporate investments, lifting market sentiment and creating further upside for risk assets. Not only will equities benefit, but the bond markets are also primed to perform well, as more investors may move to lock in current yields before rates are cut further. So, we maintain a risk-on approach, with the US, China and Singapore remaining our top picks for equities. Moreover, we’ve recently moved US investment grade bonds back to an overweight position too.

AI innovation remains firmly in place

The pace and scope of AI adoption are going from strength to strength, helping companies improve productivity and explore new sources of revenue. This should justify technology’s elevated valuations, help offset the impact of tariffs to some extent and offer enormous opportunities across sectors that benefit from the AI ecosystem more broadly – software, cloud services and networks, as well as industrials and infrastructure. Given that the broader tech theme accounts for 48% of the US equity market, US stocks should fare well if this momentum continues. Deregulation can also foster a more conducive environment for growth to accelerate, particularly in the IT and financials sectors.

Outside the US, Fed rate cuts and recent dollar weakness are key positives for Asia, and the power of AI innovation remains a key driver for earnings too – especially in China, where leading tech stocks are still trading at 30%-40% discounts to their global peers. China’s renewed focus on supply-side reforms should also help lift earnings expectations. Europe is less preferred, as growth momentum remains lacklustre and its AI adoption is still lagging behind.

Overall, we think the US rate cuts and AI innovation will be the key drivers that will help compensate for challenges in some parts of the economy. That’s why we remain positive on the market outlook while keeping an eye on tariff, inflation and growth risks across the board.

Diversification in action

Our four investment themes for the final quarter of 2025 continue to emphasise diversification across asset classes, sectors and regions, to build resilience in an uncertain world. And this resilience is further enhanced by adding less-correlated assets, such as gold, infrastructure and other alternatives, to our multi-asset strategies.

In line with the theme of diversification, we’ve included a special feature on infrastructure and its role in the transition to a net zero future. Another piece looks at unconventional approaches to retirement among affluent investors, with mini retirement growing in popularity.

As we head into the final stretch of a volatile year, investors will need to remain on guard against any surprises that could trigger further swings in markets. As always, our investment team is ready to discuss any changes you would like to make to your portfolio.

Investment themes

Regional market outlook

Key data to watch

Related Insights

Weaker-than-expected US payroll numbers, an elevated real policy rate and Fed Chair...[1 Sep]
The Bank of England (BoE) cut interest rates to 4.0%, marking the lowest level...[8 Aug]
The US has announced trade agreements with 69 countries, but only seven countries have...[4 Aug]
Notes
The above comments reflects a 6-month view (relatively short-term) on asset classes for a tactical asset allocation. For a full listing of HSBC’s house view on asset classes and sectors, please refer to our Investment Monthly issued at the beginning of each month.
    Listening to what you have to say about services matters to us. It's easy to share your ideas, stay informed and join the conversation.