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Our House Views


Investment Monthly - May 2023

The Investment Monthly discusses key issues facing investors and offers the latest HSBC house & sector views.

Key Takeaways

  • Softening US March inflation data and easing banking concerns outweigh the cyclical headwinds and reinforce our view that the Fed funds rate is likely to peak by June, with two more 0.25% rate hikes to come. We prefer IG bonds with medium maturities and quality companies to mitigate downside risks to growth.
  • Slowing growth and tighter financial conditions will lead to further downgrades in the US, but we believe this will change in H2. Moreover, US equities historically performed well after the Fed paused, so we remain overweight. We upgrade UK equities to neutral on bottoming economic growth, peaking rates and cheaper valuations. Asia remains our most preferred market, supported by China’s strong recovery (Q1 GDP of 4.5%) and improved fundamentals in the region.  
  • We upgrade global and US IT to overweight due to increased potential for structural growth in technology (e.g. automation and AI development), as well as industrials in Asia amid a better cyclical outlook. We downgrade global energy to neutral due to limited upside, as well as downgrading global and US real estate given tightening credit lending and less likelihood  of quick rate cuts. Our overall sector allocation is mixed with a milder cyclical tilt.


Read our topics for this month

1. Is the peak of policy rates around the corner?

  • Headline (5%) and core inflation(5.6%) y-o-y in the US continued to fall in March thanks to lower goods, energy and rental costs, leading to markets to price in one more rate hike. The downward trend of inflation is positive for both equities and bonds.
  • Given the current economic and financial backdrop, we maintain our view that there are likely to have two 0.25% rate hikes by June, pushing the Fed funds rate to peak in the range of 5.25-5.50% until Q2 2024. While the US banking industry seems resilient, there are increased downside risks to growth and upside risks to unemployment.
  • As a result, we remain focused on investment grade with maturities up to 5-7 years to lock in higher yields. As earnings downgrades should continue in the financial, real estate and technology sectors in particular, we favour quality companies with profitability and manageable leverage.

Source: Bloomberg, HSBC Global Private Banking as at 18 April 2023.

2.  What support our neutral stance on global equities?

  • Following some volatile weeks, markets have further calmed down with equities having rebounded. We think the bounce has not come from earnings or economic growth but rather from rates, as proven by the high correlation between bonds and equities. As hopes for rate cuts are premature in our view, we favour companies, sectors and geographies that can deliver solid earnings growth.
  • Although slowing growth, as well as tighter financial conditions and margins, will lead to further earnings downgrades in the US, we believe that an imminent recession is unlikely and expect earnings to change in H2. Moreover, in the six prior monetary policy tightening cycles, US equity markets rallied almost 20% in the subsequent 12 months after Fed paused, supporting our overweight on US equities. In the UK, as economic data seem to have bottomed, we believe that the Bank of England is likely to deliver only two more 0.25% of rate hikes and then pause (markets are pricing in three hikes ). This supports valuations which are currently cheap. We upgrade UK equities to neutral.
  • In contrast to slowing growth in the West, China’s reopening and strong Q1 GDP data of 4.5%, along with improved fundamentals in Asia, make the region a sweet spot to invest compared to developed markets. In short, we remain neutral on global equities, and stay invested and diversified in quality assets.

Source: Bloomberg, HSBC Global Private Banking as at 18 April 2023.
Past performance is not a reliable indicator of future performance. 

3.  How to position sector allocation amid reduced cyclical risks?

  • Cyclical risks are reducing on the back of the easing banking crisis, as well as peaking policy rates and falling inflation in the US. While cyclical stocks have underperformed, they are cheap relative to their historical levels and the defensive sectors, presenting good opportunities in selected space.
  • With increased potential for structural growth in technology (e.g. automation and AI development), we upgrade global and US IT to overweight. As valuations are not cheap, we focus on companies that will deliver on earnings. We downgrade global energy to neutral as further upside on prices is limited but cash flows should remain strong. Tightening credit lending and less likelihood of quick rate cuts lead us to underweight global and US real estate. We also upgrade industrials and downgrade healthcare to neutral in Asia amid a better cyclical outlook in the region.
  • Interest rate sensitive sectors such as housing, autos, financials and (to some extent) IT will see further downgrades. A mixed sector allocation between cyclicals and defensives is still recommended although we have moved to a mild cyclical tilt.

Source: Bloomberg, HSBC Global Private Banking as at 18 April 2023. Past performance is not a reliable indicator of future performance.

HSBC Perspectives Q2 2023

Shaping your investment portfolio

Investment themes for Q2 2023

  • Lock in attractive yields on quality medium-term bonds
  • Ride the reopening tailwinds in Asia
  • Capture the upside in sectors with the best fundamentals
  • Power your portfolios with ESG rising stars


Read our full report to access more on these themes, key data to watch and regional views across the world.


Read our investment themes

1. Lock in attractive yields on quality medium-term bonds

Amid rate and growth uncertainty, investment grade bonds still offer attractive yields and carry opportunities as yields are near multi-year highs. Moreover, as we expect inflation to decline and policy rates to stabilise, we prefer medium-term maturities to lock in decent yields for a longer period of time.

  • Investment-grade bonds offer attractive returns and are likely to be less volatile than equities in the current environment
  • We favour 5-7 years maturities for the US, UK and EUR investment grade bonds amid a high for longer rate outlook

2. Ride the reopening tailwinds in Asia

We see more upside in Asia than elsewhere with China’s faster-than-expected reopening fuelling market optimism. Mainland China’s reopening bodes well for its neighbouring markets in the region. ASEAN markets have strengthened their fundamentals through financial deleveraging and infrastructure development over the past decade.

  • Mainland China’s reopening is set to benefit Asian (ex Japan), mainland Chinese and Hong Kong equities. We’re especially optimistic about consumer-facing sectors, such as retail, e-commerce, hospitality, entertainment and travel
  • We also see value in Southeast Asia as trade and travel normalise across the region. Thailand and Indonesia are our top picks within ASEAN

3. Capture the upside in sectors with the best fundamentals

With all major markets now having reopened after the pandemic, the consumer discretionary and communications services sectors are set to thrive on pent-up travel and consumption demand. It’s sensible to adopt a more balanced approach to capturing the upside of both the cyclical and defensive sectors.

  • With risk appetite recovering, investors can consider a more balanced allocation between cyclical and defensive sectors
  • We favour energy, healthcare, consumer discretionary and communication services in most regions

4. Power your portfolios with ESG rising stars

The Russia-Ukraine war has brought energy security concerns to the fore, with many governments accelerating plans to invest in clean energy infrastructure to achieve energy efficiency. Biodiversity is another key trend not to be missed, and we see abundant opportunities in near future transition.

  • We continue to like long-term structural trends in renewable energy, green infrastructure and energy efficiency
  • Investors can also consider sustainable agriculture, responsible forest management and circular economy themes as awareness of biodiversity issues increases