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Why consider a US multi-asset approach now?

The US is currently the fastest growing developed market economy, delivering strong investment returns with steady economic and corporate earnings growth.
19 December 2019
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    Key takeaways

    • The US is currently the fastest growing developed market economy, delivering strong investment returns with steady economic and corporate earnings growth
    • We expect the US to continue near its current growth level, with a strong labour market continuing to support consumer spending and economic activity
    • A multi-asset approach allows investors to capture the strong growth potential in the US, while expanding opportunities and diversifying risks across asset classes, such as stocks, bonds and property

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    Why invest in the US now?

    The US is currently the fastest growing developed market economy, delivering strong investment returns with steady economic and corporate earnings growth. American companies account for more than half of the Global Top 100 companies.

    Fig 1. Global top 100 companies by region

    Fig 1. Global top 100 companies by region

    Source: PWC, global ranking of top 100 companies by market capitalisation, August 2019.

    Looking ahead, we expect the US to continue near its current growth level, with a strong labour market continuing to support consumer spending and economic activity. Also, the Federal Reserve (US central bank) is expected to keep interest rates low, aiming to further support economic growth.

    Why US equities?

    If we look at the S&P 500 Index, it has outpaced most markets over the last 10 years (see Figure 2). US companies continue to have strong and stable earnings, offering growth and relatively reliable dividend income, which is key for investment returns. In addition, steady economic growth, low interest rates, strong labour markets and consumer spending will continue to be positives for US equities.

    Although uncertainty related to trade tensions and other factors may contribute to some moderation in growth by reducing US companies’ investments, a continuation of supportive policy by the Federal Reserve should help US growth stay along the path of its long-term trend. The US economy continues to display resilience that we are not seeing in many other developed markets. A slowdown in company earnings growth this year already appears to be stabilising, with forward expectations for earnings growth now moving back upwards.

    Fig 2. Equity 10-year total returns

    Fig 2. Equity 10-year total returns

    Source: HSBC Global Asset Management and Bloomberg, as of 31 October 2019. Past performance is not indicative of future performance. For reference only and does not constitute any investment recommendation.

    Why US fixed income?

    Interest rates and bond yields in the US are higher than most developed markets, as majority of them are offering close-to-zero, or even negative bond yields (see Figure 3). US bonds therefore are quite attractive from the perspective of income generation. Also, the emphasis on keeping interest rates low by the main central banks globally is positive for US bonds (bond values rise when interest rates decline).

    Fig 3. 10-year government bond yields

    Fig 3. 10-year government bond yields

    Source: HSBC Global Asset Management and Bloomberg, as of 31 October 2019. Past performance is not indicative of future performance. For reference only and does not constitute any investment recommendation.

    On high yield space, the stability in the US economy and the earnings of its companies can help reduce the default risks of US high yield bonds. High yield bonds are issued by companies with a higher risk of defaulting on their debt. This higher risk is supported by higher coupon rates/interest payments. While we are monitoring default levels which may rise from currently very low levels, we don’t see pronounced risks.

    Why consider a US multi-asset approach now?

    • Allows investors to capture the US’s strong growth potential, while expanding opportunities and diversifying risks across asset classes, such as stocks bonds and property
    • The US economy and its financial markets continue to demonstrate long-term strength and stability
    • Steady earnings growth and high profitability by US companies, along with positive interest rates in the US, position the market well for investors seeking income generation

    Important information

    The value of an investment and any income from it can go down as well as up and as with any investment you may not receive back the amount originally invested.

    Past performance should not be seen as an indication of future returns. Any views expressed were held at the time of preparation and are subject to change without notice.

    The material contained herein is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. You must not, therefore, rely on the content of this document when making any investment decisions.

    This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.

    The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Stock market investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns.

    This document is approved for issue in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Conduct Authority.
    www.assetmanagement.hsbc.com/uk

    Copyright © HSBC Global Asset Management (UK) Limited 2019. All rights reserved.

    This document has not been reviewed by the Securities and Futures Commission. HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Global Asset Management (Hong Kong) Limited.

     


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