2025-03-24 07:04

Key takeaways The noise level in the markets remains very high. A dramatic rise in policy uncertainty is creating a more volatile environment, which could persist. Chinese policymakers have unveiled a new 30-point plan to boost domestic consumption as part of efforts to fire-up the country’s economy. After an impressive two-year rally driven by strong inflows and high growth expectations, Indian stocks have lagged their global peers in 2025 – with MSCI India down 7%. Chart of the week – Central banks in ‘wait–and–see’ mode Uncertainty was very much the broad theme of last week’s central bank policy meetings, with an increasingly complex macro reality clouding the outlook. As expected, the Fed kept rates on hold, maintaining ‘wait-and-see’ mode in the face of heightened policy uncertainty. Fed Chair Jerome Powell signalled no hurry to cut rates as the central bank seeks to balance competing considerations of upward inflation pressure, downside growth risks, and fragile sentiment. The Fed revised down its 2025 GDP growth forecasts to 1.7% from 2.1% and nudged up its inflation expectations – an uneasy mix that raises the spectre of stagflation. The inescapable message was that uncertainty is “remarkably high”, with the so-called ‘dot plot’, which tracks the year-end rate projections of Fed officials, more scattered now than it was three months ago. For other central banks, there was modest divergence but few surprises. Banco do Brasil’s ongoing efforts to tackle resurgent inflation saw it hike rates by 1%. By contrast, Swiss policymakers responded to persistently low inflation with a 0.25% cut. Others, including China, the UK, and Sweden, all followed the Fed’s cautious stance. On balance, we think global central banks remain on course to cut rates this year as cooling labour markets allow inflation considerations to give way to shoring up growth that is being damaged by uncertainty. Barring a major shock, this would be a decent backdrop for global risk assets to perform and laggard markets to continue to catch up. Market Spotlight Sustainable thinking Ten years ago, the United Nations agreed a set of Sustainable Development Goals (SDGs) aimed at promoting a fairer, healthier, and more sustainable future. Since then, asset allocators have used them to measure sustainability outcomes in portfolios. But there have been challenges, particularly because there is no one-size-fits-all way of measuring companies against broad and often overlapping goals. Part of the challenge with SDGs is that they were designed with sovereigns, rather than corporates, in mind and many of them are qualitative. That can make them difficult to measure and apply to investment portfolios, especially at scale. The ambiguity raises the risk of greenwashing and missing out on investment opportunities. The quant solution is to move away from viewing SDGs primarily as reporting metrics aiming to measure every company against every SDG and instead break them into granular investment themes that are easier to link to specific company activities. That way, it’s possible to be more precise about how firms’ impact on those individual themes within SDGs, and do it – with the help of AI – at scale. The result is a more robust, quantitative process for thematic portfolios, that offers a competitive edge in rapidly changing markets. 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 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 21 March 2025. Lens on… The new uncertainty trade The noise level in markets remains very high. A dramatic rise in policy uncertainty is creating a more volatile environment, which could persist. What’s new is that volatility is back in the stock market. After the 2021-22 inflation burst, volatility in 2023 and 2024 was mostly contained to short-term interest rates and bond markets, with technical factors also keeping the VIX index supressed. This year, elevated policy uncertainty, the AI wobble, and investors’ reduced faith in US exceptionalism are all creating a rockier journey in US stocks. The US market has gone from hero to zero. China, broad emerging markets, the eurozone, and even the FTSEs are all outperforming. Uncertainty is not great for macro trends either. Both consumers and businesses move into wait-and-see mode, which can stall economic activity. For now, we don’t think the system is in imminent recession danger. Instead, the situation is one of growth cooling down. But even without a more adverse scenario materialising, uncertainty has a price. Investors should prepare for more surprises as we head toward Q2. Only one thing is for sure: the uncertainty trade is back. China’s consumer boost Chinese policymakers have unveiled a new 30-point plan to boost domestic consumption as part of efforts to fire-up the country’s economy. It follows recent National People’s Congress meetings, where domestic demand stimulus was billed as the government’s top priority. The plan reiterates previous announcements designed to raise wages, cut financial burdens, and encourage spending. It includes measures to stabilise the stock market – a driving force of consumer confidence – and develop more bond products suitable for individual investors. As well as promoting traditional consumer sectors like cars and property, the plan also encourages high-growth areas of consumer spend, such as ‘silver tourism’, and AI-powered technologies like autonomous driving, smart wearables, ultra-high-definition video, robotics, and 3D printing. For now, China looks to be in ‘wait and see’ mode amid elevated global economic and trade policy uncertainty. But the policy shift toward consumption is positive. And while there is no magic bullet to drive a quick or strong turnaround in consumer spending, the perceived policy put may continue to support investor sentiment, propagating a virtuous cycle between consumption and the stock market. India stocks – on sale? After an impressive two-year rally driven by strong inflows and high growth expectations, Indian stocks have lagged their global peers in 2025 – with MSCI India down 7%. After recent falls, India’s price/book valuation relative to the rest of the world (excluding the Covid sell-off) has slipped to a 20-year low. But why? Recent weakness has been driven by a mix of foreign investment outflows, lacklustre Q3-FY25 profits news, and trade policy uncertainty. That’s despite the stimulative effects of an RBI rate cut, measures to boost system liquidity, and positive signals from February’s Union Budget. In addition, India’s relatively closed economy could make it less sensitive to trade tariffs than some of its Asian neighbours. Against that backdrop, its stocks are still expected to deliver mid-teens earnings growth in each of the next two years. Near-term performance could be driven by favourable base effects, a pick-up in government capex, and strong rural growth. Longer-term, India’s structural growth story remains intact, underpinned by favourable demographics, rising incomes, supply chain diversification, and government reforms – making recent market weakness a potential buying opportunity. 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, Datastream, MOVE: BofA ICE. Data as at 7.30am UK time 21 March 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 21 March 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 Risk markets rebounded as investors digested the latest Federal Reserve FOMC meeting and Chair Powell’s post-meeting remarks, while the US dollar index remained range-bound. Core government bonds saw a broad-based rally. The FOMC downgraded its growth projection, upgraded its near-term inflation forecast and maintained its projection for further gradual easing. US equities mostly rose, led by the Russell 2000. The Euro Stoxx 50 posted decent gains. Japan’s Nikkei 225 moved higher, driven by Financials, as the latest data and the BoJ officials’ comments reinforced market expectations of further gradual BoJ policy normalisation. In emerging markets, India’s Sensex rose strongly, and South Korea’s Kospi performed well, while Chinese equities drifted lower. In commodities, oil prices advanced, with geopolitical developments remaining in focus, and both copper and gold rose. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/central-banks-in-wait-and-see-mode/

2025-03-24 07:04

Key takeaways As expected, the Federal Reserve kept rates unchanged at 4.25%-4.50%, making it the second consecutive pause. The FOMC’s latest summary of economic projections (SEP) showed slower GDP growth and higher core inflation vs. projections from December 2024. Mr. Powell acknowledged the increased uncertainty over the economic outlook amid policy changes, but reiterated the wait-and-see approach, apart from slowing the quantitative tightening process, which can be seen as a mild easing step. For US equity investors, the widespread use of tariffs and the potential for accelerating inflation continues to dampen the outlook for corporate profits and economic growth in 2025. Amid uncertainties, we expect US equities to remain volatile in the near term and continue to diversify into the Forgotten 493 stocks in the US and into international markets. We see tactical opportunities in credit as the Fed policy easing should resume soon and continue to expect three rate cuts this year (June, September and December). What happened? As expected, the Federal Reserve kept the federal funds target range unchanged at 4.25%-4.50%. The FOMC continues to balance dual risks of higher short-term inflation due to tariffs on the one hand and the rising tail risk of recession (not our core case) due to the recent weakening of economic data on the other hand. The latest summary of economic projections (SEP) showed slower GDP growth and higher core inflation compared to the previous set of projections made in December 2024. The projection for the unemployment rate at the end of this year was raised modestly from the prior forecast. The inflation outlook was lifted, perhaps taking into account the potential implications of tariffs. However, inflation is still expected to reach the Fed’s 2% target by year-end 2027. Median of the FOMC economic projections, March 2025 Source: Federal Reserve, HSBC Global Private Banking and Wealth as at 19 March 2025. Forecasts are subject to change. In an attempt to mitigate damage caused by the Federal government passing the debt ceiling, effective 1 April 2025, the monthly redemption cap on Treasury securities will be reduced from USD25 billion to USD5 billion, while the cap on agency debt and mortgage-backed securities remains unchanged at USD35 billion. This adjustment signals a more gradual approach to balance sheet normalisation. The potential downside risks to growth and upside risks to inflation, in part from tariffs and trade policy uncertainty, create a complication for the monetary policy outlook. The dot plot, which provides insights into the Committee's expectations for the Federal funds rate, shows that the median projection for 2025 is 3.875%, implying two 0.25% rate cuts by year-end, i.e. a total reduction of 0.50% from the current midpoint of 4.375% (within the 4.25%-4.50% range). We continue to forecast 0.75% of rate cuts in 2025, followed by no change in policy rates in 2026. Will the most aggressive Fed tightening ever result in aggressive easing as well? Source: Bloomberg, HSBC Global Private Banking and Wealth as at 19 March 2025. Forecasts are subject to change. Powell described tariff-driven inflation as potentially transitory and highlighted that short-term inflation expectations have risen due to tariffs, but long-term expectations remain “well-anchored” near the 2% target, suggesting confidence in the Fed's ability to manage inflation over the long run. He explained that central bankers often view tariff effects as one-time price level increases rather than ongoing inflation, unless they trigger broader changes in consumer behaviour or retaliation cycles. He noted that the Fed has revised its 2025 core PCE inflation forecast upward to 2.8% from 2.5%, reflecting these pressures, but stressed the need for more data to assess whether these effects will persist or fade over time. He also estimated a roughly 1-in-4 chance of a recession over the next year, noting that while some forecasters have raised recession probabilities, they remain at moderate levels. Investment implications For fixed income investors, while the disinflation process is occurring more slowly than previously forecast, it seems that the Fed is content with inflation heading toward 2%. As a result, the Fed policy easing should resume soon, which means any backup in market rates is an opportunity. We maintain our preference for an active approach in fixed income. For US equity investors, the widespread use of tariffs and the potential for accelerating inflation continues to dampen the outlook for corporate profits and economic growth in 2025. The FactSet consensus earnings growth estimate for the S&P 500 has been revised from 15% to 11.5%. This sizable downward revision should incorporate a mild slowdown in economic growth and tighter corporate margins if tariffs are enacted and companies choose to absorb part of the increased price levels. Until the tariff policy decisions are finalised, US equities may remain volatile and the outlook for corporate profits is uncertain. It is also important to note that despite the near-term risks, the 2026 forecast for S&P 500 corporate earnings shows a sharp acceleration to 14.2%. Valuations are now much more reasonable, and market sentiment is fairly weak, suggesting that perhaps the worst of this repricing of US equities may be behind us soon. We believe diversification is key and continue to diversify into the Forgotten 493 stocks in the US and across sectors and markets, including China, Singapore, Japan and India. Multi-asset portfolios with an active approach are best placed in this environment to manage ongoing uncertainties. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/the-fed-stays-patient-recognising-increased-economic-uncertainty/

2025-03-21 07:04

Key takeaways The March FOMC was marked by little or no change, with policy rates and the ‘dots’ left unaltered. While the FOMC’s projections were changed in a pessimist direction, Fed Chair Powell’s tone was one of reassurance. The USD wobbles and will probably rest more on how US trade policy evolves over the near term. For a second straight meeting, the Federal Open Market Committee (FOMC) voted to keep the federal funds target range at 4.25-4.50%, as widely expected. In its policy statement, the Federal Reserve (Fed) noted that uncertainty around the economic outlook “has increased”. Fed Chair Jerome Powell said, the central bank was “not going to be in any hurry to move” in the press conference when answering a question about the potential for a pivot back towards rate cuts as soon as the next policy meeting in May. The updated FOMC’s economic projections showed slower GDP growth but higher inflation, hinting at stagflationary risks (see the table below for details). The median interest rate projections (known as “median dots”) remained unchanged from those laid out at the December meeting. It suggests two further 25bp cuts in 2025, compared to markets which also see a 60% chance of an additional third cut (Bloomberg, 19 March 2025). Our economists still expect 75bp of rate cuts in 2025, followed by no change in policy rates in 2026. Source: Federal Reserve Uncertainty was a recurring theme in the press conference, waiting for clarity on how trade, immigration, fiscal, and regulatory policies actually evolve. But for the most part, Fed Chair Powell’s tone was one of reassurance. He downplayed suggestions that the US was heading for recession, noting that the hard data on activity remains solid. He also did not sound especially exercised about the upward revisions to inflation and near-term inflation expectations, instead stressing that longer-term inflation expectations remained anchored. While the economic projections may have changed, the tone around the policy path has not. With policy rates and ‘median dots’ left unaltered, the 18-19 March FOMC meeting was sufficiently neutral not to challenge the prevailing USD bearish mood in the market, especially with US yields falling. But it was not enough to prompt a sustained USD decline either. The key for the USD now is likely to rest more on how US trade policy evolves, rather than monetary policy. Our central case is that the USD will recover some lost ground over the long run, as US tariffs rise, the Fed does not cut more than what is already priced, and the rest of the world begins to look less exceptional again. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/fed-held-rates-steady-again-trade-policy-key-for-usd/

2025-03-18 12:02

Key takeaways China’s National People’s Congress (NPC) announced a c5% GDP growth target and steady policy support. Policy is shifting to supporting consumption and rolling out structural reforms to urbanise the migrant population. New laws to build a business-friendly environment should boost confidence and facilitate innovation. China data review (January-February 2025) Retail sales rose by 4% y-o-y in January-February on the back of the recent expansion in consumer durable goods trade-in programs. Consumer durable goods trade-ins were front-loaded in January with a quota of RMB81bn, which was expanded to include consumer electronics (phones, tablets, and smart watches). By category, communications appliances (+26%) and household appliances (+10.9%) were the stand outs. Despite the improvement in consumption figures, there are warning signs that the key drivers for consumption growth (income and wealth) are facing pressure, with the unemployment rate rising to 5.4%, the highest level since 1Q23. Meanwhile, the property market remained under pressure as property investment declined 10% y-o-y in January-February, residential floor sales fell 3.4%, and new floor starts were down 29% y-o-y. Industrial production sustained elevated growth rates, up 5.9% y-o-y in January- February, due to robust export growth and equipment trade-in programs. However, there may be some pressure on manufacturing to come with the impact of tariffs and a drag from global demand is likely to pick up. Meanwhile, policy moves to adjust industrial capacity in some sectors such as steel may also be accelerated, which could lead to a near-term hit for production, although this should help lead to better adjustment in prices and in turn profitability. Headline CPI contracted 0.7% y-o-y in February given distortions from the earlier (January) start to the Chinese New Year (CNY) holiday this year and a plunge in food prices. Indeed, the National Bureau of Statistics noted that excluding the earlier CNY, CPI actually rose 0.1% (NBS, 9 March). Meanwhile, PPI deflation saw a slight improvement to 2.2% y-o-y in February amid recovery of some demand for industrial products. Exports rose 2.3% y-o-y in January-February showing resilience despite the implementation of 10% US tariffs on 4 February. Indeed, exports continued to rise, both to the US (+2.3%) and to intermediary markets such as ASEAN (+5.7%) and Latin America (+3.2%). However, imports dropped 8.4% y-o-y in January-February, partly related to lower prices as well as supply-side adjustments in industrial sectors, e.g., iron ore imports were down 30%. NPC wrap-up: Expanding domestic demand on all fronts China’s week-long annual policy setting meetings concluded on 11 March. In addition to the key briefings on the Government Work Report and the fiscal budgets (Figure 1), there were six press conferences led by department heads throughout the week, highlighting key policy details for their respective fields. We discuss the key takeaways. Plans to boost growth Policymakers set an ambitious growth target of “around 5%” for 2025, while reiterating it would implement proactive macro policies to support growth. The Government Work Report and fiscal budgets provide overall guidance while the press conferences held throughout the week provided more details on how the government will prop up domestic demand this year. This has become more critical as the global backdrop remains highly uncertain and more tariff risks remain on the horizon. The key policy themes were centred around boosting technology and innovation, unlocking consumption in more areas (e.g. services) and accelerating support for China’s structural transition. Now, it comes down to implementation. Technology development in the spotlight Various department heads noted a range of measures to support ongoing technology innovation and adoption, which should help build on the recent momentum stemming from new Artificial Intelligence (AI) developments in China such as DeepSeek and Manus. The policy measures announced were broad and emphasised capital market and financing support such as the development of a technology board for the bond market, promotion of merger and acquisitions for more indebted technology companies, expanded relending facilities for technology transformation, and boosting education capacity. Building a business-friendly environment While DeepSeek’s success has lifted business confidence regarding China’s technology innovation, a broad-based recovery is still needed. A new law aimed at ensuring the legal protection of private enterprises – the Private Economy Promotion Law – is on a fast-track, while the construction of a unified national market is likely to accelerate, which is designed to tackle internal trade barriers and level the playing field (source: Xinhua, 9 March). Cyclical and structural policies to boost consumption Domestic demand strength is likely to rely on sustainable consumption growth. To support this, direct cyclical policies have been expanded (e.g. funding for consumer durable goods trade-in programs doubled to RMB300bn), more spending is earmarked for higher quality public services, and measures have been rolled out to boost household disposable income. Of particular importance is the upgraded ‘Hukou reform’ – c300m migrant workers and their families will be eligible for public services, including schools, healthcare, and social housing based on their residence. Other structural policies include increased support for lower income groups and social welfare such as increasing minimum basic standards for pensions (which should help 320m people), increasing fiscal subsidies for medical insurance, and the gradual rollout of free pre-school education – currently China provides nine years of free, compulsory education covering primary school and middle school years. Such policies can help to improve income levels, unlock precautionary savings, and also help to address demographic challenges. There’s also an emphasis on supporting service consumption, which only accounts for c50% of total consumption spending despite the rapid growth witnessed post-pandemic. The commerce minister said that the primary challenge in developing service consumption is the shortage of quality supply. In addition to supporting domestic players to provide diversified services, China is promoting opening-up in telecommunications, healthcare, and education industries as well as advancing the orderly opening of sectors including internet and culture. Additional policies for China’s transition Aside from expanding consumption and improving innovation, which are key aspects of supporting China’s longer-term productivity, there was also mention of adjusting capacity. While policymakers have lowered this year’s inflation target to 2%, there will be more policies to promote consumption, which should help CPI inflation. But equally important will be adjustments in supply. Policymakers have noted that they would aim to withdraw outdated and inefficient capacity, which could involve raising production standards or window guidance for firms. This should in turn help to lift prices and improve profitability for firms. Source: Government Work Report 2025, Xinhua, HSBC Source: LSEG Eikon Note: *Past performance is not an indication of future returns. Priced as of 14 March 2025. Source: LSEG Eikon https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/npc-wrap-up-expanding-domestic-demand-on-all-fronts/

2025-03-17 08:06

Key takeaways Political change in Germany and the broader debate around US outperformance have weighed on the USD lately… …but recent tariff headlines received only muted FX reaction. Beyond near-term movements, we expect the USD to remain strong over the long run. The US Dollar Index (DXY) has declined to its lowest level since November 2024, hovering around 103-104 recently. The USD’s poor showing is partly due to the German election and the incoming government’s change in fiscal stance, which have played an important role in benefiting the EUR of late. It is also because markets have reservations about the US growth outlook, treating US policy uncertainty as USD negative, rather than a source of expected USD strength (Chart 1). Germany’s fiscal package is likely to be positive for the EUR over the near term, thereby weighing on the USD. However, it is not certain that the German and Eurozone growth outlooks will improve rapidly, given implementation risks. Plus, some of this euphoria could be offset by US tariffs that could also turn the USD stronger against the EUR and other currencies. At the moment, tariff risks remain underpriced. The EUR shrugged off the arrival of new tariffs on exports to the US, and retaliatory tariffs from the EU on 12 March. Similarly, the CAD did not react to the escalation in trade conflicts between the US and Canada. These recent tariff headlines received only muted FX reaction, which suggests that this is all temporary noise that will be resolved. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Against the backdrop of an intensifying trade war, the Bank of Canada (BoC) delivered a 25bp cut at its 12 March meeting, taking its policy rate down to 2.75%. The decision was expected, bringing total easing since June 2024 to 225bp. BoC governor, Tiff Macklem, called the trade battle between the US and Canada a “new crisis” (Bloomberg, 13 March 2025). USD-CAD continues to hover around its year-to-date average of 1.43-1.44, tracking closely with its yield differential (Chart 2). As such, if a prolonged trade war happens, significant policy easing by the BoC could see USD-CAD surge, but this is not our base case. Our central case is that the USD will probably recover some lost ground over the long run, as US tariffs rise, the Federal Reserve does not cut more than what is already priced, and the rest of the world begins to look less exceptional again. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-still-scope-to-recover/

2025-03-17 07:04

Key takeaways Chinese equities have delivered one of the strongest performances in global markets in 2025, helped by surging momentum in technology stocks. There has been a sudden shift in the market mood music surrounding the euro of late. Perhaps more importantly, there is now excitement in FX markets regarding a significant increase in eurozone government spending on energy, climate and, most recently, defence and infrastructure. Frontier markets have been impressively resilient to global volatility this year, with Vietnam stocks – which account for around a quarter of the MSCI Frontier Markets index – advancing 6% in Q1 so far. Chart of the week – The Fed ‘put’ in investment markets US stock markets have fallen sharply in recent weeks, with tech sector shares leading the decline. It’s the latest of several episodic waves of market volatility that investors have endured already in 2025. The latest moves come amid elevated uncertainty over trade and economic policy. Investors are concerned about the growth outlook for US GDP and corporate earnings. And that’s jarring against stretched US stock valuations. It also comes as events outside the US are forcing a reassessment of TINA – “there is no alternative” to US stocks. Plans for fiscal stimulus in Germany have caused a reassessment of Europe’s long-term growth and earnings prospects. Tech sector advancements in China are also catching investor attention. Arguably, the latest sell-off would have been worse without the recent fall in government bond yields, and the rise in 2025 Fed rate cut expectations, to 3-4. But a key question now is where is the “Fed put”? If the Fed stays in wait-and-see mode amid tariff uncertainty and sticky inflation, while growth continues to slide, then markets have a problem. But if inflation can stay low, the Fed has a lot of policy space and could cut rates hard, if needed. So far, inflation progress looks good, with core inflation excluding shelter and used cars now running close to 2%. We think a broadening out of returns can continue across sectors, styles and regions. But the probability that growth “topples over” has clearly risen. So, it could pay to consider which asset classes – like private and securitised credits – can hedge against volatility. It will also be important to remain agile and dynamic in investment portfolios given today’s complex macro reality. Market Spotlight Confidence building in Asian real estate There were signs of growing confidence in the Asia-Pacific real estate market last year. Industry data from JLL shows that regional investment volumes grew by 23% year-on-year to USD131.3bn. In Q4 2024 alone, volumes were up by 10% year-on-year, marking the fifth consecutive quarter of annualised growth. Japan set the pace overall, with a second consecutive year of record-breaking deal volumes propelled by the relatively weak yen and low borrowing costs. Developments in mainland China were also notable – where there was further guidance on policy stimulus and early signs of improving demand in some markets, like Shenzhen, hinting at a pick-up in investor interest. There were also signs of recovery in Hong Kong’s office leasing volumes. But sector risks remain. If policy and geopolitical uncertainty prove to be inflationary, it could disrupt the global rate cutting cycle. And with some Chinese property developers in the headlines over default risk concerns, the country’s property market still faces headwinds. Despite that, there are potential grounds for cautious optimism for a continuing revival in Asian real estate in 2025. While the path to recovery is likely to be patchy, regional supply overhang is easing, leasing markets are improving, and global rate cuts should be a benefit. 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 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 14 March 2025. Lens on… A tale of two tech sectors Chinese equities have delivered one of the strongest performances in global markets in 2025, helped by surging momentum in technology stocks. The pick-up has come just as US markets have weakened – led by a slump in ‘big tech’ names, with Magnificent Seven stocks down a combined 15% this year. So, why are Chinese tech stocks doing so well? Recent industry developments – like the emergence of AI start-up DeepSeek and its R1 model – have reset investor assumptions about Chinese tech’s ability to compete for supremacy in fields like AI and robotics. Chinese authorities have also redoubled their support for the sector. This month’s NPC meetings saw plans to accelerate AI adoption and digital tech, with an expansion of the PBoC’s tech industry re-lending programme and a new bond platform to support innovation funding. For investors, evidence of Chinese tech leadership, government support, and sector valuations that remain at a deep discount to the US, have been enough to fire-up optimism. Evidence of new AI and tech advancements benefitting China’s tech sector and other industries could drive a further re-rating for the sector, and the wider market. Make the euro great again There has been a sudden shift in the market mood music surrounding the euro of late. Until recently, the dominant narrative for the single currency was based on weak growth that prevailed for much of last year even as inflation remained high. Yet, the euro has found a base in recent weeks amid a story of fading US exceptionalism and divergent macro momentum relative to the US, where some recent data has been soft. Perhaps more importantly, there is now excitement in FX markets regarding a significant increase in eurozone government spending on energy, climate and, most recently, defence and infrastructure. In places, it’s reignited speculative talk of more fiscal and strategic cohesion across the bloc. These positives for the euro have shielded it from the impact of global trade policy uncertainty which, until recently, had been holding the euro back from strengthening in line with interest-rate differentials. While escalating trade tensions could complicate the story, those rate differentials should remain supportive of further euro strength as the business cycle outlook for the eurozone and the US is re-assessed. The softening in US CPI inflation last week adds further impetus to this divergence story. Vietnam – leading from the frontier Frontier markets have been impressively resilient to global volatility this year, with Vietnam stocks – which account for around a quarter of the MSCI Frontier Markets index – advancing 6% in Q1 so far. A re-routing of global supply chains in recent years has transformed Vietnam into a major manufacturing hub and a global exporter. Government efforts to simplify regulations, cut red tape, and attract foreign investment have paid off, and the country is now gaining a foothold in more advanced industries like semiconductors and AI. While trade policy uncertainty remains a risk, the latest forecasts from the IMF expect Vietnam’s 6% GDP growth last year to be matched in 2025 – outpacing its ASEAN peers. Its moderate debt-to-GDP ratio of roughly 34% in 2024 is also lower than many regional neighbours. In terms of valuations, Vietnamese stocks command a premium to broader frontier markets – with a PE ratio of 16x for MSCI Vietnam versus 11x for MSCI Frontier Markets. 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 Vindicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream, IMF World Economic Outlook. Data as at 7.30am UK time 14 March 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 14 March 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 Risk appetite remained weak amid continued trade policy uncertainty, with the US dollar index trading sideways. US Treasuries edged higher as investors digested the latest US CPI data in the run-up to the March FOMC meeting, while European government bonds were range-bound. US investment grade and high-yield corporate bond spreads widened significantly, driven by rising worries over US growth. Among stock markets, US indices weakened across the board, led by a sell-off in tech stocks in volatile trading as negative market sentiment persisted. The Euro Stoxx 50 index fell alongside the German DAX index, while Japan’s Nikkei 225 index rebounded after declines in previous weeks ahead of the upcoming BoJ meeting. In other Asian markets, the retreat in tech stocks weighed on the Hang Seng, whereas China’s Shanghai Composite rose. India’s Sensex index fell, as South Korea’s Kospi index ended barely changed. In commodities, oil prices were stable, with gold and copper extending their gains. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/the-fed-put-in-investment-markets/