HSBC Private Bank: 2021 Q4 Investment Outlook – Slower But Steady Wins the Race
HSBC Private Bank has released the Investment Outlook for Q4 2021. HSBC Global Chief Investment Officer of Private Banking & Wealth Management Willem Sels addresses the implications of a slowdown in the global economic cycle and the prospect of policy normalisation from central banks. The investment outlook note also covers the firm‘s current positioning, explaining the importance of making portfolios resilient, the need for greater diversification across asset classes and geographies, and how the firm is keeping sustainability high on its agenda (September 2021). View: Investment Outlook Q4 2021
As part of the HSBC Group, one of the world‘s largest banking and financial services organisations, HSBC Private Banking seeks to be the leading international private bank for business owners and their families. It provides clients with wealth, business and family succession solutions in the largest and fastest growing markets around the world. HSBC Private Banking is the marketing name for the private banking business conducted by the principal private banking subsidiaries of the HSBC Group.
HSBC Private Bank: 2021 Q4 Investment Outlook – Slower But Steady Wins the Race
Willem Sels, HSBC Global Chief Investment Officer of Private Banking & Wealth Management Comments:
“It is clear from recent economic data that global economic momentum is slowing. To some extent this is natural: after the V-shaped recession and quick rebound, sequential growth numbers are bound to slow and enter the mid-cycle stage.
This is a bit more than the natural end to the ‘V‘-shaped recovery, however, and global economies are clearly facing enduring challenges. Supply disruptions are taking longer to be resolved than many expected, which is weighing on manufacturing activity, and lockdowns and fear of infection are still holding back consumer demand.
Our view is that while these challenges may be delaying the recovery, they should not derail it entirely. Inventories will still need to be rebuilt, and if it happens at a slower pace, the boost should be smaller but more protracted, keeping the economic recovery going. Consumers will want to spend some of their accumulated savings in coming months, and governments are helping to extend the economic cycle through huge infrastructure and green energy investments.
Therefore, around the world, we think the picture is one of slightly lower, but gradual and prolonged growth. This entails that policy normalisation can also be slower and more gradual, as the risk of overheating is reduced. We expect the tapering of US bond purchases to start in November or December, and be a slow process, with US rate hikes following only in 2023. The UK may Iift rates by 0.4% i n 2022 (to 0.5%), and a few emerging markets may start hiking rates, but gIobaI financial conditions will likely remain very accommodative.
For markets, this combination of continued growth with low rates forms part of an encouraging backdrop. In addition, the latest earnings season was strong, with a near-record number of companies exceeding expectations, and somewhat lower price-to-earnings ratios may make investors more comfortable with current high valuations. Bond investors are challenged by high valuations as well, but given the very slow nature of policy normalisation, those valuations should be well supported.
The continuation of growth and accommodative monetary policy in the mid-cycle stage motivates us to remain invested and adopt a mild risk-on stance. Cash remains unattractive, and we expect positive returns for equities, credit and emerging market bonds.
Nonetheless, it is also important to ensure that portfolios are resilient, because we expect slowing upside for stocks, combined with somewhat higher volatility, and there is execution risk due to the Fed‘s policy change. With bonds and equities highly correlated to each other and to Fed policy, we will seek greater diversification across asset classes, sub-asset classes, geographies and in alternative assets.”
Reflecting its latest outIook, HSBC Private Bank has made a number of changes to its portfolio positioning:
1) Adapting to slower growth:
To adapt to somewhat slower growth, we have increased our focus on resilience during the past quarter, and have introduced a quality bias, as well as a preference for large-cap stocks. We also reduced exposure to industrials and materials, two early-cycle sectors, moving them to a neutral stance. That slightly reduces the cyclicality of our equity strategy, but it is still much too early to De defensive. Lower growth should also be a headwind for industrial metals, and we have moved AUD and NZD to neutral.
2) Implications of policy action:
The start of US policy normalisation leads us to expect some USD strength, which is likely to lead the euro lower. In the emerging markets, we are starting to see the potential for some rate hikes, so we have become more selective and have shortened the duration in our bond portfolios.
Following the regulatory actions in China‘s education sector, we think foreign investors are awaiting more clarity and we moved our Chinese allocation to neutral in the third quarter. We continue to invest in China‘s secular growth opportunities exposed to semiconductor, advanced technology, automation and the net zero transition. Asian investors can diversify in the region into Thailand, Taiwan and Singapore, as well as globally.
3) Keeping sustainability high on the agenda:
One area where being slow and steady is a very bad idea is sustainability. The floods and fires around the world, and the UN‘s Intergovernmental Panel on Climate Change report will keep sustainability high on the list of market considerations ahead of the COP26 summit and Germany‘s September elections. It is clear that we need to approach climate change both from a mitigation and adaptation perspective, and we have increased our emphasis on adaptation.
We have also launched a new theme, the rise of ‘S‘ in ESG‘, focusing on sustainable healthcare and diversity and inclusion issues, as the pandemic has further illustrated inequalities and the importance of companies’ social role in society.
View HSBC Global Private Banking: Investment Outlook Q4 2021
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The Hongkong and Shanghai Banking Corporation Limited is the founding member of the HSBC Group. HSBC serves customers worldwide from offices in 64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2.97 trillion (30/6/21), HSBC is one of the world’s largest banking and financial services organisations.
HSBC Private Banking
As part of the HSBC Group, one of the world’s largest banking and financial services organisations, HSBC Private Banking seeks to be the leading international private bank for business owners and their families. It provides clients with wealth, business and family succession solutions in the largest and fastest growing markets around the world. HSBC Private Banking is the marketing name for the private banking business conducted by the principal private banking subsidiaries of the HSBC Group.
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