2025-02-14 07:04

Key takeaways Biomimicry is a field that emulates designs and processes in nature to create new technologies and a greener future. Turbine blades incorporate features from humpback whales for efficiencies and a new clothing fabric mimics lotus leaves. As a fast-growing field with research and patents growing rapidly with supportive policies – this is nature investing with a twist. Biomimicry is a field that emulates designs and processes in nature to create new technologies and a greener future. Examples include adhesives inspired by gecko feet, metal detectors influenced by sharks, and night vision goggles drawn from snakes that can detect warm-blooded prey in complete darkness. As a fast-growing field with research and patents increasing rapidly, and supported by policy, this is nature investing with a twist. Did you know? A Zimbabwe shopping centre uses termite mound-inspired ventilation to lower its reliance on air conditioning by 90% Engineers increased electricity generation by 10% after incorporating designs similar to bumps found on humpback whales into wind turbine blades 3% of biomimetics publications in 2016 related to sustainability, but rose to 7% by 2020, indicating an increasing focus on sustainability in the field Research articles and conference papers focused on biomimicry research increased by 60x from 1995 to 2020 28% of biomimicry sustainability research publications from 2004 to 2021 were focused on resource efficiency, the largest by category 20% of ‘biometric sustainable design’ publications from 2004 to 2021 were published in China, the largest by country Inspired by nature Biomimicry observes how things work in nature by studying the forms (shapes & structures), processes (behaviours & methods) and systems (interdependence & ecosystems) of plants, animals and ecosystems, translating them into innovative and sustainable solutions. The field seeks to improve human-derived processes in areas including energy efficiency, sustainable materials and strength and durability. Mimicking nature’s forms – more efficient turbines with tubercles By incorporating into wind turbine blades, a design similar to tubercles (bumps the size of golf balls) found on humpback whales, engineers can reduce drag as it allows the blades to spin faster with less resistance, generating 10% more electricity. Whale-fin inspired wind turbine blades Source: HSBC (based on Wenliang Ke at al., 2022) Mimicking nature’s processes – butterfly wings inspire more efficient solar cells Researchers studied the light-absorbing black wings of a certain butterfly, finding tiny, random holes that scatter sunlight for better absorption. By mimicking this design, researchers created thin silicon solar cells with similar holes which can absorb light regardless of the angle. Butterfly wings inspired solar cells Source: HSBC (based on Siddique et al., 2017 Mimicking nature’s systems – lotus-leaf inspired clothes Scientists are developing fabrics that mimic the lotus leaf’s self-cleaning properties, which helps to reduce water usage for washing, and ultimately reduces the fabric’s footprint. Lotus leaf inspired fabrics Source: HSBC (based on Becky Poole, 2007) A rapid evolution Biomimicry research has seen a surge in interest over the past three decades, as evidenced by a 60x increase (1995-2020) in research publications across a wide range of scientific disciplines such as materials science, chemicals and engineering. This shows the power of bio-inspiration, and the applicability of biomimicry in helping to advance science and technology. Proactively fitting in with sustainability However, not all biomimicry research is considered as sustainable. A 2023 study by Jatsch et al. finds “an urgent need to ramp up sustainable design within biomimetic research”. The study found that only 3% of biomimetics publications in 2016 related to sustainability, but this portion rose to 7% by 2020, indicating an increasing focus on sustainability in the field. Of the research papers that do explicitly contribute to sustainability, many different areas are being explored with efficiency a key focus. Jatsch et al. also note that the largest contributors to carbon emissions globally (China, US, India, Europe) are also the lead contributors to biomimetics research that actively includes sustainability. Classification of research publications (2004-21) into different sustainability aspects Source: Jatsch et al., 2023 The race to be inspired There has also been a substantial increase in biomimicry patents since 2000. A 2023 study by Haejin Bae finds that “biomimicry technology is in a growth phase that is expected to continue in the future and that South Korea and the United States are leading the development of this technology”. Bright future Artificial Intelligence AI could accelerate progress in biomimicry and enable more accurate and complex analysis through data processing, simulation, modelling and pattern recognition. For instance, researchers at Arizona State University are turning their attention to social insects like ants and bees. By studying their behaviour – how these insects communicate, solve problems and adapt to their environment – researchers are designing robots that can work together in factories and other situations such as aiding in disaster areas. Policy landscape The future for biomimicry appears positive as more policies are aimed at fostering innovation and sustainable development. More governments are now recognising the potential for biomimicry and are implementing national-level policy initiatives to support research and development in biomimicry. Working with nature We think policy support for biomimicry will grow as biodiversity continues to rise up the global agenda. For example, some emerging economies are exploring how to leverage their local biodiversity for innovation, to create supportive ecosystems for biomimicry R&D, and to facilitate international research collaboration. One important angle is the integration of benefit-sharing frameworks that ensure the economic benefits derived from biomimicry are aligned with biodiversity conservation. This involves creating legal frameworks that protect biodiversity hotspots, ensuring that biomimicry practices don’t harm natural ecosystems. Conclusion As we continue to discover the vast potential of biomimicry, its impact will undoubtedly continue to grow, pushing advancements across diverse sectors and technologies. The Biomimicry Institute has a Ray of Hope Prize Accelerator offering support for “high-impact nature-inspired startups”. Companies and investors that embrace these technologies can become frontrunners in shaping a more sustainable future. With consumers increasingly looking for more sustainable solutions, biomimicry presents a natural investment opportunity. By investing in bio-inspired technologies, investors and corporates can not only achieve potential financial gains but also become catalysts for positive change as they help to drive the transition towards a greener economy and a healthier planet. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/biomimicry-learning-from-nature/

2025-02-11 12:02

Key takeaways In recent weeks, the introduction and threats of US tariffs… …have caused shocks across markets… …and threatens what had been a steadily improving growthinflation mix. Uncertainty is back with a vengeance in the global economy, with the first few weeks of President Trump’s second term leading to tariff announcements and delays, triggering market volatility across currencies, rates, equities, and cryptocurrencies. Tariff impacts Should US tariffs and retaliatory action take effect, the impact could be significant, particularly for Canada and Mexico, given more than 75% of their exports go to the US (Chart 1). For now, US inflation has remained broadly under control (Chart 2), but tariffs risk upsetting that trend, potentially adding to goods inflation, even if US imports of goods are less than 10% of GDP. At the same time, tariffs threaten both global trade and broader growth. The increased level of uncertainty in the global trading system is likely to weigh on investment plans, whilst supply chains are ripe for rejigging around any potential tariff targets. Source: Macrobond, IMF DOTS Source: Macrobond. Note: Estimates are baselines. Activity data have been strong in the US… That said, the US is starting the year from a position of strength after a barnstorming Q4 for consumers that saw consumption rise by 4.2% q-o-q annualised on the back of strong real income growth. Survey data suggest there could be further growth momentum into 2025, even if labour market indicators are a little more mixed. …but generally softer across the globe The rest of the world is vulnerable to this uncertainty – particularly mainland China – where an additional 10% tariff was imposed on 4 February. Growth revived in some areas in Q4 (Chart 3), but uncertainty over the future for exports and still subdued confidence look likely to hold back any significant growth recovery, absent a further substantial fiscal stimulus package. Source: Macrobond Source: Macrobond In Europe, tariff threats further cloud a gloomy outlook, where continued struggles on the industrial front are not being offset by consumers opening their wallets. Despite tight labour markets in most economies and improving real incomes, confidence remains weak and GDP growth has ground to a halt in both the eurozone and the UK. Across the emerging world, the previous growth star of India has shown some wobbles of its own, leading the Reserve Bank of India (RBI) into cutting rates, while in Brazil stronger growth data and a deteriorating inflation outlook have played a role in driving even more tightening from the central bank. Heightened uncertainty It’s a challenging world for central banks weighing up the inflationary and growth consequences of a tariff-related supply shock – at a time when food and gas prices are rising. The job isn’t made any easier as 2025 has started with the level of uncertainty pushed into a new gear. Source: Bloomberg, HSBC ⬆Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus Source: LSEG Datastream, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/tariff-threats/

2025-02-11 07:04

Key takeaways RBI’s Monetary Policy Committee (MPC) unanimously decided to cut the benchmark repo rate by 0.25% to 6.25%. All six MPC members chose to retain the liquidity stance at “neutral”. Overall, we expect the current rate cut cycle to be a shallow one and expect one more 0.25% rate cut from the RBI in the April MPC meeting. However, we assign a high likelihood of further liquidity support to the financial system between now and the April MPC meeting. The RBI meeting was a positive for the domestic equity markets as the rate cut should lead to marginally lower borrowing cost for companies. The announcement to push back the implementation of more stringent Liquidity Coverage Ratio (LCR) measures to March 2026 is a clear positive for Financials. Hence, we retain our overweight stance on Indian equities, with a preference for the financials, industrials and healthcare sectors. As we expect 10-year yields to edge lower, we remain bullish on INR local currency bonds. What happened? On 7th February, the RBI’s Monetary Policy Committee (MPC) unanimously decided to cut the benchmark repo rate by 0.25% to 6.25%. At the same time, all six MPC members chose to retain the liquidity stance at “neutral”, allowing them the flexibility to move in either direction on rates or liquidity. This was the first meeting under the new RBI Governor Malhotra, with markets looking at RBI guidance on rates, liquidity and regulations. Heading into the meeting, we expected the RBI to cut rates by 0.25%, as we expected the central bank to increasingly focus on balancing both growth and inflation dynamics. Latest projections by RBI MPC Source: RBI, HSBC Global Private Banking and Wealth as of 7 February 2025 On the regulatory front, the central bank pushed back the implementation of more stringent LCR requirements to March 2026, and signalled a gradual implementation. We view this as a near-term positive for the financials sector. In its updated projections, the RBI expects the economy to grow at 6.7% in FY 26 (Apr 2025 – Mar 2026) and expects inflation to average around 4.2% over the same timeframe. The RBI Governor also spoke about using the flexibility embedded in the inflation targeting framework to improve outcomes and highlighted the central bank’s commitment to provide sufficient liquidity to the system. It is worth noting that the RBI has injected INR 2tn of liquidity over the past few weeks, through the use of a variety of instruments, such as OMOs, FX swaps and long-dated VRRs. Overall, we expect the current rate cut cycle to be a shallow one and expect one more 0.25% rate cut from the RBI in the April MPC meeting. However, we assign a high likelihood of further liquidity support to the financial system between now and the April MPC meeting. Investment implications RBI’s FY26 growth and inflation projections indicate that the policymakers remain comfortable with India’s growth trajectory and expect further easing in inflation, broadly in line with our expectations. While the monetary policy stance is still “neutral”, we believe that the RBI is likely to provide further liquidity over the coming months and deliver further rate cuts, which are positive for both equities and bonds. In our assessment, the RBI meeting was a positive for the domestic equity markets from two aspects. First, the 0.25% rate cut and robust growth projections lead to marginally lower borrowing cost for companies - improving their margins - also encouraging them to resume capex. Secondly, the announcement to push back the implementation of more stringent Liquidity Coverage Ratio (LCR) measures is a clear positive for Financials. INR has been amongst the worst-performing Asian currencies in 2025 Source: Bloomberg, HSBC Global Private Banking and Wealth as of 7 February 2025. Past performance is not a reliable indicator of future performance. Hence, we retain our overweight stance on Indian equities, with a preference for the financials, industrials and healthcare sectors. Counter-intuitively, the 10-year Indian government bond yields rose by c.0.05% following the rate cut announcement. It was likely due to a combination of the fact that markets had largely priced in the rate cut prior to the meeting and potentially the disappointment that the RBI kept monetary policy stance unchanged at “neutral”. Nonetheless, we believe that further rate cut in April, along with the lower net supply indicated in FY26 budget and robust demand means that 10-year yields are likely to edge lower. We therefore remain bullish on INR local currency bonds. With real interest rate differentials between the US and India close to flat, our expectation of a 0.25% RBI rate cut in April and Fed pause over the same period may lead to unfavorable dynamics for the INR in the near term. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/rbi-commences-the-rate-cut-cycle/

2025-02-10 12:02

Key takeaways The Fed held rates unchanged, while both the ECB and the BoE lowered their key rates by 25bp, as widely expected. The divergence in both monetary policy and growth between the US and other economies should play to the USD’s advantage. Unlike the USD, both the EUR and GBP are facing stagflationary challenges, alongside the tariff risks. The Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) did not surprise markets at their first policy meetings in 2025. The Fed kept the federal funds rate steady at 4.25-4.50% after its 28-29 January meeting. Fed Chair Jerome Powell was basically able to paint a goldilocks picture of a resilient economy and inflation that is well off its highs, even if the last steps towards target are taking longer than anticipated. Our economists still expect 75bp of Fed cuts in 2025, but no longer expect the first cut this year to come in March. Instead, our macro team look for three rate cuts to be delivered in 25bp steps at 17-18 June, 16-17 September, and 9-10 December policy meetings, bringing the federal funds target range to 3.50-3.75% by end-2025. The USD was little changed after the announcement. In the end, uncertainty is likely to remain the key theme, not least with the US tariff news dominating over the near term. Amid the noise of the news flow, we expect the USD to remain strong. A day after the Fed’s announcement, the ECB cut its key policy rates by 25bp, bringing the key deposit rate down to 2.75% and the main refinancing rate down to 2.90%. The ECB remains confident that disinflation is well on track, and our economists think that another 25bp cut is likely at its next meeting on 6 March after which the debate might heat up. Markets expect the ECB rate to finish the year around 1.80% (Bloomberg, 6 February 2025). If the tariff threat materialises in earnest, those expectations may need to drop further. As the Eurozone still faces a challenging growth/inflation mix alongside the tariff risks, the EUR is likely to weaken further this year, in our view. Like the ECB, the BoE also delivered a 25bp rate cut, sending the Bank Rate to 4.50%. But the monetary policy committee’s (MPC) vote was dovish, at 7-2 with two members (Catherine Mann and Swati Dhingra) preferring a larger 50bp move. That being said, the BoE signalled a “gradual and careful approach” to future rate cuts. At the same time, the central bank’s latest forecasts depicted a more stagflationary picture in 2025, cutting its growth forecast to 0.75% (from its November forecast of 1.50%) but raising its inflation forecast to 3.50% (from 2.75%). GBP-USD dropped below 1.24 before recovering some of its earlier losses. We expect the GBP to weaken against the USD, but should the dovish voices grow within the MPC, the risk is that GBP-USD could drop faster and more than expected. Our economists expect the BoE to accelerate its pace of easing, cutting at every meeting from September 2025 to February 2026, taking the Bank Rate down to 3.0% in 1Q26. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/the-fed-pauses-as-both-the-ecb-and-boe-cut-rates/

2025-02-10 07:04

Key takeaways The yield curve has flattened by around 20bp since the US 10-year yield peaked in mid-January. However, some analysts continue to think the trend is towards a “structural steepening”. US earnings season approached half-way last week, with some of the S&P 500’s big technology names reporting figures for Q4 2024. After the recent ‘AI trade’ wobble, the outlook for tech profits has been under the microscope – particularly given the sector’s high valuations. India’s recent FY2025-2026 Union Budget endeavoured to strike a balance between boosting growth, maintaining capex spending, and sticking to a path of fiscal restraint. Chart of the week – Policy uncertainty and stock market valuations Quantitative measures of global policy uncertainty are increasing. Last week, like in the last few weeks, investors had to deal with another burst of episodic volatility in markets. Global stocks weakened, reflecting how policy uncertainty can be a challenge to profits and how it prompts more risk aversion. While, in government bonds, there was a “flattening” of the yield curve (see further details on page 2), as markets reflected the possibility of bumpier disinflation. Meanwhile, the US dollar remained a safe harbour, strengthening as policy uncertainty increased. But after being a serial winner in FX markets, investors are beginning to question whether “King dollar” can keep the crown? After all, the dollar is expensive, the Fed is still cutting rates in 2025, and US fiscal deficits are very wide. Investors need to consider the possibility that further dollar strength may be temporary. Another telling sign of risk aversion in markets was the rally in the gold price. Gold has been on a tear over the past 12 months. The recent rise in policy uncertainty has seen that trend continue. Overall, the latest bout of volatility – the third this year after the surge in bond yields and the AI trade wobble during January – reinforces that markets will face a volatile ride at times in 2025, albeit against a broadly constructive backdrop of no recession, further rate cuts and resilient profits. This is called “volatile Goldilocks”. Market Spotlight Hedging volatility With bouts of volatility proving to be a feature of markets this year, diversification strategies are front of mind for asset allocators. After a strong performance in 2024, one asset class that could be ideally placed to keep delivering in these conditions is hedge funds. Hedge funds have a track record of outperforming global balanced portfolios during spells of particularly high volatility. Moreover, when you combine them into well-diversified portfolios of different strategies, their own volatility profile compares well against traditional assets. In fact, with recent volatility notably affecting cryptocurrencies, hedge funds also offer potentially more resilience than non-traditional, crypto diversifiers. Crucially, hedge fund strategies can profit from volatility in a range of ways, including long and short positioning, and arbitrage opportunities. Against a backdrop of higher levels of uncertainty, they have new opportunities to feed off the associated volatility. For 2025, rising uncertainty and market volatility are likely to play to the strengths of hedge funds, providing a potential boost to returns, as well as a degree of downside protection. 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. Past performance does not predict future returns. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 07 February 2025. Lens on… Curve appeal The yield curve has flattened by around 20bp since the US 10-year yield peaked in mid-January. However, some analysts continue to think the trend is towards a “structural steepening”. The prospect of further gradual Fed easing should put downward pressure on the two-year yield while further declines in the 10-year yield are likely to be limited by two key factors. First, US government debt is high and rising, and the situation is unlikely to change anytime soon. Second, a more fragmented geopolitical and international trade backdrop implies greater inflation volatility. The term premium on US Treasuries could, therefore, trend higher as investors require greater compensation for holding longer dated debt, leading to a gradual steepening of the curve. Moreover, should growth disappoint, and the Fed eases policy aggressively, the curve would steepen rapidly. Where this view could go wrong is if the Fed were forced to hike the funds rate. However, the bar for this to happen is quite high given Chair Powell views policy as “meaningfully restrictive” and the FOMC does not want labour markets to “cool off anymore”. Earnings broadening? US earnings season approached half-way last week, with some of the S&P 500’s big technology names reporting figures for Q4 2024. After the recent ‘AI trade’ wobble, the outlook for tech profits has been under the microscope – particularly given the sector’s high valuations. Some ‘Magnificent Seven’ stock prices have been punished on marginal profit misses, high capex spending, and disappointing forward guidance. In terms of year-on-year Q4 profit growth, Financials are leading the index, with Communications Services and Technology also beating expectations. Among the growth laggards have been Industrials, Energy, and Materials. While the profits growth outlook is solid for the US, there have been downward revisions to 2025 consensus expectations recently. By contrast, Europe and China, which both saw a deterioration in the profit growth outlook last year, have seen revisions pick-up for 2025. This is evidence of profit growth potentially broadening beyond the US to markets that are significantly cheaper. In Europe, weak sentiment has set a low bar for positive surprises. While in China, further policy stimulus this year could herald a performance pick-up. India’s growth plan India’s recent FY2025-2026 Union Budget endeavoured to strike a balance between boosting growth, maintaining capex spending, and sticking to a path of fiscal restraint. India experienced a cyclical slowdown last year, so a key budget pivot was an income tax cut to encourage consumer spending. Meanwhile, capex spending on road and rail is set to remain flat, with marginal growth in other sectors. And as for the fiscal deficit, the reduction target for FY25-26 is 4.4% versus 4.8% in FY24-25. In response, consumer stocks rallied, while some railway, industrial and capex-sensitive plays corrected. Indian stocks have weakened since their peak last September, and CY24 earnings expectations have fallen by 3%. With an easing in frothy valuations, the large-cap Nifty 50 index now trades at a forward price-to-earnings ratio of 19.3x, which is around its five-year average. However, major sectors (excluding financials) are still trading at a premium and could be vulnerable to any macro or profit disappointments amid elevated short-term expectations. Active stock selection remains crucial. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 7.30am UK time 07 February 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 07 February 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Market review Rising global policy uncertainty cast a pall over risk markets last week. While the US dollar index consolidated, core government bonds rallied in response to some weaker-than-expected US macro prints, with eurozone bonds and UK Gilts slightly outperforming US Treasuries. The BoE lowered rates by 0.25%, with two members calling for a 0.50% reduction. In the stock markets, US equities reversed early losses last week, benefitting from lower US bond yields. The Euro Stoxx 50 index recorded stronger gains following a wave of upbeat earnings, while Japan’s Nikkei 225 ended lower amid investor caution over external uncertainties and a firmer yen against the US dollar. Other Asian stocks mostly performed well, with Hong Kong’s Hang Seng and mainland China’s Shanghai Composite posting catch-up rallies after the Lunar New Year holiday. In commodities, oil fell, whereas gold and copper both rose. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/policy-uncertainty-and-stock-market-valuations/

2025-02-05 21:05

Key takeaways Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-trends/fx-eyes-on-us-trade-policy-developments/