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Our House Views


Investment Monthly - September 2023

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

Key Takeaways

  • With Treasury yields rising to their cycle highs, driven by bond supply concerns, we see value in US Treasuries and move to overweight. Investment grade (IG) credit spreads have tightened but yields remain attractive. So our overweight in high quality bonds now includes both Treasuries and IG bonds. Historically, they both do well when the Fed stops hiking interest rates.  
  • The property sector continues to weigh on China’s growth. Contagion fears regarding the potential default of a large developer and tighter liquidity conditions arising from shadow banking defaults hurt sentiment,  warranting a neutral position for mainland Chinese and Hong Kong stocks. Valuations look cheap and we like consumer services and travel-related sectors. We stay overweight on Asia ex-Japan equities, favouring Indian and Indonesian stocks.
  • The outperformance of technology and communications in the US has led to higher valuations of US equities, with the former more justified by stronger earnings prospects. We remain overweight on technology but diversify with consumer discretionary, industrials and financials stocks. We add healthcare to the opportunity set as we see emerging tailwinds of MedTech innovation and structural demand for treatment of age-related and chronic illnesses.


Read our topics for this month

1.  What does the recent spike in US Treasury yields mean?

  • US Treasury yields have reached multi-year highs and there are two reasons for the move. Firstly, the US economy and the consumer market remain resilient, as evidenced by the strong macro and retailers’ earnings data. Secondly, rising bond issuance has pushed up the yield at which supply and demand match. 
  • The spike in Treasury yields is driven by real yields rather than long-term inflation expectations and provides a good entry point. Markets have now given up on quick rate cuts in the next 12-18 months and priced in just four cuts by December 2024. Although Chair Powell made it clear at Jackson Hole that the FOMC will remain data dependent and restrictive, we  maintain our projection of a total cut of 0.75% starting in Q2 2024 and the Fed funds rate to reach 4.50-4.75% by the end of 2024. This gives us greater comfort in the short and medium-dated Treasury yield levels.
  • Since we adopted an overweight positioning for investment grade (IG) in July 2022, spreads have tightened somewhat and are now close to their 5-year average. We take some partial profits and move into US Treasuries, which are now upgraded to overweight, while still maintaining an overweight position for IG credit with medium maturities. Historically, both Treasuries and IG outperform cash in the next 6 months after rates peak.

Source: Bloomberg, HSBC Global Private Banking as at 23 August 2023. Past performance is not a reliable indicator of future performance.

2. What is our view on the Chinese equity markets?

  • China’s economic data continue to be disappointing with the property market being a key drag on growth. The news flow has become more challenging recently. The potential default of a large Chinese privately owned developer has raised contagion fears for the broader housing market, shadow banking sector and Chinese banks. Further shadow banking defaults could lead to tighter liquidity conditions for the property and onshore capital markets. We believe the authorities will continue providing positive support but those measures will be gradual given their focus on structural reform direction rather than a “big bang” approach. The scope for a rebound in the short term is limited.
  • As many Hong Kong developers are exposed to mainland China, and because of the continued surge in office supply and low office leasing demand, we expect to see some weakness in stock performance.
  • Therefore, we downgrade both mainland Chinese and Hong Kong equities to neutral and, as a result, Asian real estate to underweight. Valuations remain attractive. The recently announced secondary market measures, including stamp duty cuts, new restrictions on share sales by major stakeholders, and lower deposit ratios for margin financing, help provide  technical support to the market. We prefer service consumption and travel-related sectors, such as internet leaders, airlines, travel plays, consumer discretionary and Macau gaming. We remain overweight on Asian ex-Japan equities, favouring Indian and Indonesian stocks.

Source: NBS, HSBC Global Research estimates as at 23 August 2023. Forecasts are subject to change.

3.  Should we broaden our sector exposure given high valuations of IT?

  • Technology and communications have outperformed in the US equity markets year-to-date, raising markets concerns over their higher valuations. The former is more justified due to its stronger earnings prospects. We choose to take some profits on US communications and move it to neutral.
  • While an improved structural outlook favours cyclicals in general, we see strong tailwinds in the US healthcare sector, compensating the regulatory risks on drug prices. These include innovation around immuno-oncology, obesity and rare diseases. Together with the increasing demand for treatment of age-related and chronic illnesses, we see upside potential for the sector despite its year-to-date underperformance. 
  • The upgrade of US healthcare to overweight will help create a balance between value and growth within a portfolio. We maintain a pro-cyclical bias, overweighting technology and consumer discretionary across the regions, and additionally industrials and financials in the US and globally.     

Source: Bloomberg, HSBC Global Private Banking as at 23 August 2023. Past performance is not a reliable indicator of future performance.

HSBC Perspectives Q4 2023

Shaping your investment portfolio

Four investment themes to help shape your portfolio

  • Lock in attractive bond yields for longer
  • Focus on stronger fundamentals
  • Broaden sector exposure to capture upside
  • Leverage innovation and sustainable 


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


Review the core themes behind our investment outlook

1. Lock in attractive bond yields for longer

We believe the Fed has finished its rate hike cycle and will pause until Q2 2024. As markets start to anticipate rate cuts, bonds will benefit while cash returns will decline. In fact, investment grade (IG) and Treasury yields have reached their multi-year highs, providing a good entry point to lock them in for a medium duration.

  • We overweight investment credit across developed and emerging markets and Treasuries with maturities up to 5-7 years.

2. Focus on stronger fundamentals

Asia provides the upside risk to global growth with China in the driving seat. China’s post-pandemic reopening has revived the economy at full speed and we expect the momentum to accelerate in H2. Asia is also attractive for its long-term structural opportunities and is set to take centre stage for growth and will continue to attract inflows.

  • Our optimism lies with Asian ex-Japan, mainland Chinese, Hong Kong and Indian equities. Indonesia remains our top pick within ASEAN
  • We favour quality leaders in travel, airlines, mass consumption, hospitality, food and beverages and Macau gaming

3. Broaden sector exposure to capture upside

Investors can diversify beyond technology in search of sustained returns. High-quality companies in the consumer discretionary and consumer staples sectors could be attractive given the strong US labour market, China’s reopening and Asia’s favourable demographics. Financials should also benefit from peaking rates and cheap valuations. Most large banks have delivered positive earnings results this year.

  • We maintain a cyclical tilt and overweight technology and consumer discretionary across regions.
  • We see value in the financials and industrials (Global and US) and healthcare (US).

4. Leverage innovation and sustainable investment

Sustainability remains key to our investment process and we see ESG as a core component of portfolio construction. The energy transition and biodiversity remain our top ESG themes. Global action to address energy security is driving more investment into clean energy and transition fuels. We believe companies that prioritise biodiversity conservation can generate positive environmental and financial outcomes.

  • We favour the long-term structural trend of energy transition, particularly in renewable energy, green infrastructure and energy efficiency
  • Biodiversity opportunities in sustainable agriculture, responsible forest management and the circular economy offer diversification benefits and potential returns in the long run