2025-05-22 12:02

Building a resilient portfolio for an uncertain era The past few months have given investors plenty to ponder, with US trade tariffs causing elevated volatility in multiple asset classes around the world. Traditional safe-haven assets, such as Treasuries and the US dollar, were no exception. What’s more, we expect tariffs to remain with us for some time, as they’re a negotiating tool to obtain concessions from other countries and provide the US administration with a way to finance planned tax cuts. So, economists and businesses have been trying to assess what the impact will be on growth, earnings and inflation. That’s not an easy task, as the tariff levels have been changing and could still change further. That said, the 90-day tariff reprieve (now also including China) offers temporary relief, and there’s hope with the recent US-UK trade deal that other countries will follow. What does this mean for investors? The recent US-China negotiations, albeit a temporary reprieve, have rekindled market optimism. US equities have regained the lost ground since the 2 April Liberation Day announcements, supported by stronger-than-expected Q1 corporate earnings and benign April inflation data. This all seems to point to a better outlook. As a result, we’ve moved global and US equities back to an overweight position. This swift change in view is driven mainly by a U-turn in trade policy, which has reduced recession risks. However, the dust has yet to settle on this period of geopolitical uncertainty. So, we stick to our basic, yet important, rule of diversification and look to deepen it further. We expect other nations to continue or even intensify their trade with non-US trading partners. This means that investors will also want to diversify and capture opportunities beyond the US. Asia is in better shape for various reasons. Notably, its domestic resilience and structural growth opportunities are evident, and clusters of manufacturing expertise in China and Asia can’t easily be broken up. High US tariffs on some Southeast Asian markets will also benefit India’s manufacturing sector, while Singapore stands out as an outlier in the current trade tensions among other Asian markets. Structural trends remain intact From a fundamental perspective, we still have faith in the US’s long-term strengths, particularly in areas like AI adoption and innovation, even though they’ve been overshadowed by tariff-related concerns. In fact, we continue to see examples of AI revolutionising business models or boosting efficiency around the world. If Technology and Communications are beneficiaries of the AI momentum, then the industrials sector is also a winner across all regions, driven by high demand for digital infrastructure and the US administration’s focus on re-industrialization and the onshoring of jobs. Renewable energy can also benefit as AI adoption has a high reliance on electricity. Diversification in focus amid slow but positive growth and gradual easing At this juncture, when tariff negotiations are still up in the air, we continue to use quality bonds with a medium-to-long duration, gold and less-correlated assets to solidify diversification. We also leverage active management to adjust portfolio allocations as and when needed. For individual investors, these objectives can be achieved through multi-asset strategies with exposure to various asset classes, markets and currencies. As always, this report presents our four investment themes and brings more value to our readers by delving into specific topics. This quarter, to help you position your portfolios, we look at the potential scenarios for US tariffs and their investment implications, as well as how Asia can ride on AI-driven opportunities. We hope these insights will help you navigate this period of uncertainty and offer a clearer picture for the months ahead. Best wishes for a smooth investment journey. https://www.hsbc.com.my/wealth/insights/market-outlook/investment-outlook/building-a-resilient-portfolio-for-an-uncertain-era/

2025-05-21 12:01

Key takeaways The quick US-China agreement and the US-UK trade deal have substantially reduced downside risks. As earnings growth expectations have been lowered and valuations are more fairly valued, we think the rotation away from US assets will ease. Coupled with AI-led innovation and other structural opportunities, we move global and US equities, as well as Technology, back to overweight while cutting Europe ex-UK equities to neutral. We continue to stay diversified through multi-asset strategies and gold to manage downside risks. The correlation between stocks and bonds has fallen back into negative territory, reinforcing the diversification benefits of bonds. We prefer UK gilts due to their attractive real yields, and GBP/EUR investment grade credit. We expect the Fed to cut rates three more times this year, while the Bank of England is signalling more rate cuts than the market expects. Despite a less daunting tariff outlook, we expect the upcoming trade talks between the US and China to be lengthy and Chinese policymakers to continue ramping up policy support to boost local demand. We remain overweight on Chinese equities with a focus on AI enablers and adopters across industries and expect the market rally to broaden out to the consumption, financial and industrial sectors. Both India and Singapore stand out as relative trade safe havens. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/reduced-trade-tensions-lift-optimism-for-us-stocks/

2025-05-20 12:01

Key takeaways China officials announced a raft of policy measures during a recent press conference, backing their pro-growth stance… …including interest rate cuts, support for Central Huijin as a stabilisation fund and policies to bolster the real economy. US-China trade talks have ignited hopes for a de-escalation and, if successful, present upside risks for economic growth. China data review (April 2025) Retail sales grew at 5.1% y-o-y in April, helped by expanded funding for tradein programmes (RMB162bn year-to-date versus RMB150bn last year). Products covered by the scheme saw double-digit growth in April, including communication appliances (19.9% y-o-y) and household appliances (38.8%). For autos, sales volume continued to be strong, up 15% y-o-y, while electric vehicles (EVs) were up 34%, based on CPCA data. Industrial production was up 6.1% y-o-y in April, reflecting the stronger-thanexpected export growth, which was driven by trade restructuring. Policy incentives to promote large-scale equipment upgrading (RMB200bn of funding support) and cultivate technology and innovation also helped boost production. However, some labour-intensive sectors, such as textiles (2.9% y-o-y), may have been hit due to the increased external uncertainties. The property sector remained a key drag on the economy in April, which saw deeper falls in investment (down 11.3% y-o-y), primary home sales (down 2.4% y-o-y in volume terms) and home prices (second hand home prices down 0.4% m-o-m). The government may need to step up support to help reverse the slump, and it still has ample tools to do so. Inflation prints hinted at tepid consumer prices as CPI fell 0.1% y-o-y in April, and rising downward producer price pressures, with PPI down 2.7% y-o-y. Volatile items, such as pork, remained drags to headline CPI, while core CPI continued to receive support from consumption policies. Despite robust export growth in April, its momentum may fade in the coming months, so domestic demand will need to pick up the slack, while helping to stabilise prices. Exports rose 8.1% y-o-y in April, despite prohibitive US tariffs on Chinese goods being imposed at the start of the month. This was helped by a low base and exports to third countries (especially ASEAN), on accelerated trade restructuring, related front-loading and rerouting of direct US-China shipments. Meanwhile, imports fell 0.2% y-o-y but were ahead of market expectations, on improved processing imports, likely related to exports to third countries. China easing: a raft of stimulus Following the pro-growth stance denoted in the April Politburo meeting, the heads of the People’s Bank of China (PBoC), the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC) held a press conference on 7 May to roll out financial market stabilisation measures (Table 1). The package, however, did not include direct fiscal support for domestic consumption, in line with our view that China will focus on implementing various fiscal easing already announced during the National People’s Congress in early March. Monetary easing Numerous monetary easing measures were rolled out, including lowering the policy rate by 10bp, structural relending rates by 25bp (from 1.75% to 1.5%) and the Pledged Supplementary Lending rate by 25bp (from 2.25% to 2%). Liquidity injections included an outright 50bp cut in the required reserve ratio (equivalent to a RMB1trn liquidity injection) and creation of several new monetary policy tools. If fully utilised, the new tools add an additional RMB2.1trn of liquidity to the real economy. We think more easing will follow, likely through additional rate cuts in the second half of the year and the PBoC resuming treasury purchases from the secondary market. Stock market stabilisation The CSRC emphasised that market stability is critical to economic growth and the interests of investors, while pledging support for Central Huijin to play the important role as a market stabiliser. There has been a substantial change in policy stance towards the stock market since 24 September 2024, with ‘stock market (and housing) stabilisation’ written into this year’s target. Indeed, Central Huijin announced purchases of A-share ETFs in early April when the trade escalations shocked the market (Securities Times, 8 April); however, this is the first time the CSRC has referred to it as the quasi-market stabilisation fund. The NFRA also announced that it would lower risk factors for insurance companies to increase equity exposure, encouraging more ‘patient capital’ to make stock investments. Supporting the real economy The three ministries consistently pledged support for the real economy. The PBoC’s new monetary tools are aimed at directing new funds towards technology innovation, expanding elderly care and supporting small businesses. The CSRC is prioritising reforms to provide capital support for technology innovation, while enhancing investor protection to increase market reliability. And the NFRA is focusing on financing support for real estate developers, exporters and importers, and adapting regulations to help industrial transformation and upgrading. Reviving consumption Though not a focus of the press conference, we think reviving consumption remains the primary policy target this year. The Labour Day holiday showed improving activity, but we stay cautious as outcomes of tariff negotiations remain highly uncertain, while negative impacts may just be starting to unfold. A mix of both near-term measures, like trade-in programmes and services consumption subsidies, as well as structural measures, such as improved social safety net coverage, pension reforms and stabilisation of the housing sector, will likely be rolled out. US-China trade talks China and the US announced a tentative trade truce in Geneva on 12 May, agreeing to suspend new tariffs for 90 days and scale back existing tariffs (China to face 30%, the US to face 10%). Both sides agreed to establish a ‘consultation mechanism for trade and economic issues’, laying the groundwork for future high-level dialogue. The pullback will be most welcomed by businesses on both sides that were starting to feel the pinch from reciprocal tariffs and presents upside risks to economic growth. Source: SCIO, HSBC Source: LSEG Eikon *Past performance is not an indication of future returns Source: LSEG Eikon. As of 16 May 2025, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/china-easing-a-raft-of-stimulus/

2025-05-19 12:02

Key takeaways DXY is still below what its yield differential implies, but the gap is closing as trade uncertainty recedes, for now. The recovery in the USD may also have been helped by positioning adjustment. Cyclical factors could regain traction; DXY consolidation seems likely, while the AUD and NZD may strengthen over the near term. For most of 2024, the US Dollar Index (DXY) had been tracking its yield differential, but the USD developed a premium to its yield differential in early 2025 amid US growth resilience. That premium came to an end due to US trade policy uncertainty, followed by a swift swing to a USD discount since 2 April when “reciprocal tariffs” were introduced. At one point, the DXY was c7% below the level implied by its yield differential. More recently, that discount has begun to narrow (Chart 1). This started with the USUK trade deal but got real impetus when the US and China announced an official trade truce on 12 May, with big reductions in effective tariff rates for 90 days. The recovery in the USD may also have been helped by positioning adjustment, given the stretched short DXY positioning (Chart 2). Nonetheless, it seems appropriate that the discount still exists, as negotiations are ongoing with no guarantee of success. The US will also want to secure resolutions with other trading partners with whom it runs sizeable deficits, for example, the EU where the process may run more slowly, given the multitude of countries and interests in play. Progress would see the USD gain, and setbacks see it wilt. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Still, the improvement in global trade news flow may reopen the door to cyclical factors getting more traction. A pause in parts of US trade policy should also allow the Federal Reserve to extend its pause on rate cuts so long as the resilience of the labour market and inflation data cooperate. Markets also expect the Fed to keep its policy rate unchanged at its 17-18 June meeting (Bloomberg, 15 May 2025). Until then, DXY is more likely to consolidate than see a big move in either direction. De-escalation in US-China trade tensions and positive news around potential trade deals between the US and other Asian economies should alleviate pressure on the regional growth outlook and improve overall risk sentiment. As such, AUD-USD and NZD-USD are likely to edge higher over the near term. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/dxy-closing-the-gap-with-yield-differential/

2025-05-19 12:02

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/g10-currencies-when-global-trade-uncertainty-recedes-for-now/

2025-05-19 07:04

Key takeaways The past week saw the US and China agree to substantially reduce tariffs for a 90-day period while working towards a deal. Although clearly positive news, the significant changes in tariff policy since early April are likely to make interpreting macro data tricky in the coming months. When the US government announced plans for reciprocal tariffs in early April, the initial 46% levy on Vietnam (later cut to 10% while trade talks continue) made it one of the worst affected countries. With market rotations continuing, there could be a case for investors to look beyond US large-cap dominance for upside in global small caps. Chart of the week – China’s tech-led rebound Is it deal-done and crisis-averted in investment markets? Last week’s agreement between the US and China to slash tariffs for at least the next 90 days is the strongest marker yet of a shift to policy de-escalation. In truth, investors have been alert to this theme since the market recovery began in the third week of April. But last week’s price action takes US stocks decisively above their “Liberation Day” levels. Market price moves naturally reflect a shift in investors’ assessment of the risks: lower probabilities now on bad outcomes, and higher probabilities on better outcomes. Even so, it still looks like average US tariffs will settle in the low teens, the highest rate we’ve seen in the post-war period. Macro damage has already been done. And the policy outlook remains ultra-uncertain. An important theme this year has been the dramatic rotation of the market narrative. The theme has moved from a universal belief in US exceptionalism in January to a US policy induced recession and worries about economic fragmentation in early April. Now it looks like something in-between. Markets will continue to spin-around. As for China, the US talks followed a new round of policy stimulus – including rate cuts, targeted easing, credit support, and support for financial markets. Chinese offshore indices have performed well in 2025 driven by strong returns in technology stocks, which continue to be a profit engine, with firms capitalising on DeepSeek-driven AI optimism. By contrast, onshore indices have been weaker, due to lower tech exposures and slightly higher valuations. Market Spotlight Euro vision With the Eurovision Song Contest beaming live from Basel to living rooms around the world last weekend, we bring other news from Europe – but this time on proposed developments in the bond market. Recent questions over the safe-haven status of US Treasuries have been a reminder that investors face limited substitutes given that Europe's fragmented debt markets fail to offer the depth and liquidity necessary to rival Treasuries. Moreover, structural imbalances between eurozone economies cause destabilising capital flows between “core” and “periphery” nations during stress periods. The proposal for European Safe Bonds (ESBies) offers a potential solution. In technical-speak, ESBies are the senior tranche of a securitisation vehicle backed by a diversified portfolio of eurozone sovereign bonds, with the junior tranche referred to as European Junior Bonds, or EJBies. They would command enhanced safe-haven premiums through cross-European risk pooling – signalling more market cohesion and serving as a risk-free alternative to German Bunds. They could represent a way of increasing systemic resilience, while addressing the global safe asset shortage and over-reliance on the dollar – just as US exceptionalism as the sole provider of safety is under scrutiny. 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. 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. Diversification does not ensure a profit or protect against loss. 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, Bloomberg. Data as at 7.30am UK time 16 May 2025. Lens on… Hard times The past week saw the US and China agree to substantially reduce tariffs for a 90-day period while working towards a deal. Although clearly positive news, the significant changes in tariff policy since early April are likely to make interpreting macro data tricky in the coming months. The lion’s share of survey data – aka “soft data” – for April weakened on the back of “Liberation Day”. But May is likely to see some recovery, especially in the context of resurgent US equities. However, it is worth taking a step back and remembering that even after the thawing of US-China trade relations, the average effective US import tariff has still risen to a post-WWII high. Accordingly, macro models suggest US growth will drop well below trend in the coming quarters. Hence, while “soft” data may stage a recovery, “hard” data are likely to weaken, especially given investment and consumer spending was pulled into Q1 to avoid paying tariffs, likely leaving an “air pocket” in Q2. In the absence of further positive policy news, weaker “hard” data could trigger some renewed volatility in risk markets. Efficient frontier When the US government announced plans for reciprocal tariffs in early April, the initial 46% levy on Vietnam (later cut to 10% while trade talks continue) made it one of the worst affected countries. As a fast-growing Frontier manufacturing hub, Vietnam’s goods trade surplus with the US has soared in recent years (2024: USD123.5 billion). That’s been driven by its popularity with western firms pursuing a “China Plus One” strategy of diversifying their supply chains. Like other Frontier markets, ultra-high trade policy uncertainty has caused volatility in Vietnamese stocks. But the market has rebounded well, and year-to-date Frontiers as a group have returned 8.9%, outperforming both developed (3.7%) and emerging (8.5%) markets. This positive performance is down to factors including discounted valuations, strong earnings growth, and local country idiosyncrasies that offer protection against macro pressures. In the case of Vietnam, foreign investment is expected to be sticky despite recent uncertainty, with the country’s expanding middle class, digital adoption, and urbanisation giving its economy structural resilience. Thinking small With market rotations continuing, there could be a case for investors to look beyond US large-cap dominance for upside in global small caps. The US S&P 600 small-cap index has lagged the S&P 500 by over 50% over the past decade. And while investors would be forgiven for losing patience by now, history suggests smaller firms can deliver big gains after spells out of favour. Take the 1993-2000 technology bubble. After a serious bout of small-cap neglect, the S&P small-cap index trounced the S&P 500 by 75% from 2001 to 2010. Small caps have a high beta to both local growth and borrowing. While 65% of US corporate borrowing comes from capital markets, it’s only 15-20% in Europe, making those firms more reliant on bank financing. Today, many global small-cap indices trade at a discount of close to 20% versus the last decade. Non-US small caps currently trade below their average 12-month forward PEs, with Hong Kong and UK small-cap PEs close to 10x – half the S&P 500’s 20.5x. 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. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 16 May 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 16 May 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. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Market review Risk-on market sentiment strengthened last week as the US and China agreed to reduce tariffs to 30% on Chinese imports, and 10% on US imports into China for a 90-day period. US markets now anticipate two rate cuts by year-end, down from nearly three the previous week. The US dollar continued its modest recovery, while US Treasuries declined, alongside similar yield rises in German Bunds and UK Gilts. US and eurozone credit spreads narrowed. US equities surged, driven by technology, with European markets following, supported by strong Q1 earnings in financials and healthcare. Japan's Nikkei 225 posted modest gains as the yen were range-bound. Other Asian indices performed well, led by India’s Sensex, followed by Hong Kong’s Hang Seng, China’s Shanghai composite, and South Korea's Kospi. In commodities, oil prices edged higher, whilst gold retreated from previous week’s gains. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/chinas-tech-led-rebound/