A trader on the floor of the New York Stock Exchange.
London — HSBC Asset Management has instructed investors to prepare for significant changes in the “mission economy” and macro structure.
UK lenders said in a mid-year outlook report only seen by CNBC, investors need to prepare for a business cycle to move from recovery to expansion, lower return on investment and “activist” fiscal policy. He said it would bring a time to move to.
Gross domestic product has recovered from Covid’s plunge in industrial areas of the United States, China, and Asia, corporate profits have experienced a V-shaped recovery, and 2022 earnings forecasts exceed pre-Covid forecasts. I am.
This sparked a monetary policy debate towards a tapering schedule for the quantitative easing program, and the HSBC suggested that it was in the middle and expansion phase of the business cycle.
“The outlook has been reversed after investor optimism, reduced awareness of risk and revaluation of risky asset classes,” said Joseph Little, Global Chief Strategist at HSBC. Said.
“More and more, the valuation is set to hinder returns, as a lot of good news about recovery has already been factored into the price.”
Value stocks (stocks that trade at a discounted price relative to financial fundamentals and performance) continue to not make sense against the backdrop of rising bond yields.
“We support cyclical markets like the UK, Europe and high-value EM, while the allocation is agile,” said Little.
“The downside circular risk is the US dollar, which is especially important for our strategy in favor of international equities and EM fixed income.”
Along with the cyclical transition to expansion, changes in policy consensus in developed countries now reflect a higher degree of “fiscal activity”.
This is both cyclical and structurally green and socially inclusive medium-term growth with “more use of automatic stabilizers and layoff programs in recession” is currently prioritized. As it was hardly characterized.
“The old risks of the 2010s have been replaced by a new set of challenges: tax increases, inflation and labor market strengthening. The US and Chinese policy agendas already have a significant degree of” sense of mission. ” “Masu,” said Little.
“The most fundamental rethinking of the portfolio should focus on the role that government bonds play. As the balance of economic risk changes, we are destined to lose the claim that bonds are cheap hedges.”
Acknowledging that there is no “silver bullet” solution, Little suggested that investors look for new portfolio diversification in the wider world of alternative asset classes.
“Investors should strive to be as close as possible to actual cash flows protected from inflation. Infrastructure debt is a strong candidate for it, with decent historical returns and today more than global credit. Profiles that offer higher spreads and result in more benign losses. “
HSBC believes that minerals such as copper, uranium and rare earth metals are also attractive, and carbon offsets are also attractive.
“A more common allocation would be to look at Asian bonds instead of global bonds, or Asian high yield bonds that benefit from higher spreads and lower default rates,” Little said.