Five insights in five minutes
What are policy rates going to do in Asia – both in absolute terms but also relative to America? Sure you need to read our strategists, as well as your favourite tea leaves. But it’s also critical to understand what markets are thinking. For example, using Bloomberg data to deconstruct market and neutral yield curves suggests higher rates almost across the board in 2022. Indeed, New Zealand and India’s central banks are predicted to tighten the most – by 150 basis points. That’s a punchy call given omicron. Meanwhile Malaysia is the one country where fixed income investors have priced in policy loosening before December. And, as shown by the black bars in the chart below, almost all Asian markets are discounting that rates will tighten by more than in the US next year too (the Federal Reserve is assumed to hike another 50 basis points). Japan and Malaysia are the only exceptions. A relatively bullish outlook for Asian growth then, all considered.
Conversation starter for… Asia fixed income, Asia high yield, emerging market fixed incomeFor illustrative purpose only.
Stocks started the year mostly in the red, with the US underperforming much of the world as tech and growth stocks sold off, per the chart below. While the early head start for lower valued stocks matches our strategists’ preference for markets primed for catch-up, we don’t suggest bailing on American companies. Historically, the start of the year has been a poor indicator of what is to come for investment markets. For instance, since the global financial crisis, the average MSCI World return to the end of the year following a negative first seven trading days has been nearly 11 per cent, edging out the index performance after a positive first seven trading days. And only twice has the S&P 500 delivered negative returns from now to the end of the year – in both instances that index was green at this point. The takeaway? Don’t worry about week one too much. Focus on real investment drivers, such as earnings or Elon Musk’s tweets.
Conversation starter for… global equities, US equitiesFor illustrative purpose only.
China high dividend
Although the romantic notion that the two words ‘crisis’ and ‘opportunity’ are combined together in the Chinese language is in fact a mistake of translation, it is an apt description of the country’s equity market today. Certainly 2021 felt like a crisis at times, with Chinese stocks losing a fifth of their value amidst an internet sell-off. But the resulting pessimism has given rise to some attractive dividend opportunities in sectors that are very much unrelated to real and perceived regulatory risks. For example, banking, insurance, and oil and gas are large industries that together make up 15 per cent of the MSCI China index. Their current dividend yields are 5.7, 5.0 and 8.2 per cent respectively. Nice. And with all three having price-to-books below one and price-to-earnings ratios in single digits, even the most pedantic scholars of the Chinese language may want to update their portfolios.
Conversation starter for… Chinese equities, Asian equitiesFor illustrative purpose only.
The US has just released some of the highest inflation readings in decades, with investors wondering what it all means. Our multi-asset research team has crunched some interesting numbers. Based on twelve-month US consumer price inflation, they partitioned 24 years of asset class performance data into two inflation regimes: moderate, for periods where CPI was between 1.8 and 2.6 per cent and high, when it fluctuated between 2.6 and 5.3 per cent. As illustrated below, during both regimes, most asset classes exhibited positive annual returns, even adjusted for inflation. If global equities and high yield strongly benefited from moderate inflation periods, they suffered more in periods of higher inflation. Note that emerging market debt performed well in both environments, while alternatives demonstrated why they are a good substitute for conventional asset classes in high inflation regimes. Although history might not repeat itself, such an analysis reminds us of why diversification and active management are so important.
Conversation starter for… global equities, emerging market debt, high yield, multi-assetFor illustrative purpose only.
ESG in 2022
Great sustainable strides have been made in the past decade, with 63 stock exchanges publishing ESG guidance according to the Sustainable Stock Exchanges initiative, up from just two in 2011. But this is only half the world’s bourses monitored by the SSE. What are indicators of further ESG advancement? Disclosure and biodiversity are a good start. The former looks set to improve rapidly, from Europe’s Sustainable Finance Disclosure Regulation to recently-issued Saudi ESG guidelines and Egypt’s mandatory disclosures. Meanwhile, pending standards from the likes of the International Financial Reporting Standards Foundation will serve to encourage ESG data convergence. Given the rapid loss of natural carbon sinks that absorb 40 per cent of carbon emissions, also watch out for the second part of COP 15 next quarter that will review biodiversity targets, and frameworks under the Taskforce on Nature-related Financial Disclosures. With all these initiatives, investors and the financial community play a vital role in their implementation and success.
Conversation starter for… ESG strategies, natural capital, Paris aligned ETFsFor illustrative purpose only.
Learn more about HSBC funds
Find out how to invest
For Professional Clients and intermediaries within countries and territories set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. 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 some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.
HSBC Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. (HSBC Group). HSBC Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities:
- In Argentina by HSBC Global Asset Management Argentina S.A., Sociedad Gerente de Fondos Comunes de Inversión, Agente de administración de productos de inversión colectiva de FCI N°1;
- In Australia, this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL 232595, for HSBC Global Asset Management (Hong Kong) Limited ARBN 132 834 149 and HSBC Global Asset Management (UK) Limited ARBN 633 929 718. This document is for institutional investors only, and is not available for distribution to retail clients (as defined under the Corporations Act). HSBC Global Asset Management (Hong Kong) Limited and HSBC Global Asset Management (UK) Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services they provide. HSBC Global Asset Management (Hong Kong) Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws, which differ from Australian laws. HSBC Global Asset Management (UK) Limited is regulated by the Financial Conduct Authority of the United Kingdom and, for the avoidance of doubt, includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013, under the laws of the United Kingdom, which differ from Australian laws.
- in Austria by HSBC Global Asset Management (Österreich) GmbH which is regulated by the Financial Market Supervision in Austria (FMA);
- in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 37 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;
- in Canada by HSBC Global Asset Management (Canada) Limited which provides its services as a dealer in all provinces of Canada except Prince Edward Island and also provides services in Northwest Territories. HSBC Global Asset Management (Canada) Limited provides its services as an advisor in all provinces of Canada except Prince Edward Island;
- in Chile: Operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilean state. Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;
- in Colombia: HSBC Bank USA NA has an authorized representative by the Superintendencia Financiera de Colombia (SFC) whereby its activities conform to the General Legal Financial System. SFC has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;
- in Finland, Norway, Denmark and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Stockholm branch of HSBC Global Asset Management (France), regulated by the Swedish Financial Supervisory Authority (Finansinspektionen);
- in France, Belgium, Netherlands, Luxembourg, Portugal, Greece by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026);
- in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin;
- in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission;
- in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India;
- in Italy and Spain by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Italian and Spanish branches of HSBC Global Asset Management (France), regulated respectively by Banca d’Italia and Commissione Nazionale per le Società e la Borsa (Consob) in Italy, and the Comisión Nacional del Mercado de Valores (CNMV) in Spain;
- in Mexico by HSBC Global Asset Management (Mexico), SA de CV, Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC which is regulated by Comisión Nacional Bancaria y de Valores;
- in the United Arab Emirates, Qatar, Bahrain & Kuwait by HSBC Bank Middle East Limited which are regulated by relevant local Central Banks for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority.
- in Oman by HSBC Bank Oman S.A.O.G regulated by Central Bank of Oman and Capital Market Authority of Oman;
- in Peru: HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Seguros in Perú whereby its activities conform to the General Legal Financial System - Law No. 26702. Funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Perú and is not for public distribution;
- in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore;
- in Switzerland by HSBC Global Asset Management (Switzerland) AG whose activities are regulated in Switzerland and which activities are, where applicable, duly authorised by the Swiss Financial Market Supervisory Authority. Intended exclusively towards qualified investors in the meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA);
- in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan);
- in the UK by HSBC Global Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority;
- and in the US by HSBC Global Asset Management (USA) Inc. which is an investment adviser registered with the US Securities and Exchange Commission.
- Are not a deposit or other obligation of the bank or any of its affiliates;
- Not FDIC insured or insured by any federal government agency of the United States;
- Not guaranteed by the bank or any of its affiliates; and
- Are subject to investment risk, including possible loss of principal invested.
Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided as an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively 'the MSCI Parties') expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)
Copyright © HSBC Global Asset Management Limited 2022. All rights reserved. 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 Limited.