Foreword

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This commentary has been produced by HSBC Global Asset Management to provide a high level overview of the recent economic and financial market environment, and is for information purposes only. The views expressed were held at the time of preparation; are subject to change without notice and may not reflect the views expressed in other HSBC Group communications or strategies. This marketing communication does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. The content has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. You should be aware that the value of any investment can go down as well as up and investors may not get back the amount originally invested. Furthermore, any investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Any performance information shown refers to the past and should not be seen as an indication of future returns. You should always consider seeking professional advice when thinking about undertaking any form of investment.

Key takeaways

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  • We remain overweight global equities and local currency emerging market (EM) government bonds. We also retain our underweight stance on developed market (DM) government bonds and investment grade (IG) corporate bonds
  • Global equities rose in September amid easing geopolitical concerns, whilst higher oil prices and DM government bond yields boosted energy and financial stocks
  • The Federal Open Market Committee (FOMC) confirmed that it would begin unwinding its balance sheet in October and signalled another rate hike before year-end
  • The strength of the eurozone economy continues to be acknowledged by the European Central Bank (ECB), although there is little progress in reaching its inflation target
  • China's moderate growth slowdown partly reflects efforts to reduce excess capacity, leverage and housing inventory, as well as contain financial risks

Strong and synchronised global growth environment persists

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The “Goldilocks” mix of good global growth but subdued inflation continues. In particular, the persistence of low wage growth in many advanced economies is puzzling when compared to the tightness of labour markets. Even so, it still seems likely that cyclical inflation pressures will build over time, especially in the US. Therefore, at current pricing, DM government bonds look vulnerable, especially as global central banks normalise monetary policy, albeit very gradually. Being underweight in this asset class continues to make sense to us.

In a Goldilocks economy, the risk for investors comes from over-paying for riskier assets that benefit from continued good growth. In many parts of fixed income, risk pricing looks quite complacent, with the prospective risk-adjusted returns for US and European IG credits consistent with our underweight positioning. We remain neutral in the high-yield credit universe, with a preference for higher-rated bonds. By far the best reward for us backing “Goldilocks” is through global equities, with relative valuations and fundamentals favouring Japan. We also continue to emphasise EM equities and local-currency debt.

Equities

Asset Class View View Movement
Global Overweight
US Neutral
UK Neutral
Eurozone Overweight
Japan Overweight
Emerging Markets (EM) Overweight
Asia ex Japan Overweight
CEE & Latam Neutral


Government bonds

Asset Class View View Movement
Developed Market (DM) Underweight
US Underweight
UK Underweight
Eurozone Underweight
Japan Underweight
EM (local currency) Overweight


Corporate bonds & other

Asset Class View View Movement
Global investment grade (IG) Underweight
USD IG Underweight
EUR and GBP IG Underweight
Asia Neutral
Global high-yield Neutral
US Neutral
Europe Neutral
Asia Neutral
Gold Neutral
Other commodities Neutral
Real estate Neutral

Basis of Views and Definitions of ‘Long term Asset class positioning’ tables

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Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout September 2017, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 31 August 2017, our portfolio optimisation process and actual portfolio positions.

Icons:

 View on this asset class has been upgraded

 No change

 View on this asset class has been downgraded

Underweight, overweight and neutral classifications are the high-level asset allocations tilts applied in diversified, typically multi-asset portfolios, which reflect a combination of our long-term valuation signals, our shorter-term cyclical views and actual positioning in portfolios. The views are expressed with reference to global portfolios. However, individual portfolio positions may vary according to mandate, benchmark, risk profile and the availability and riskiness of individual asset classes in different regions.

“Overweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class.

“Underweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would) have a negative tilt towards the asset class.

“Neutral” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class

For global investment-grade corporate bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, USD investment-grade corporate bonds and EUR and GBP investment-grade corporate bonds are determined relative to the global investment-grade corporate bond universe.

Long term asset class positioning (>12 months)

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Asset class View Movement Rationale
Equities
Global Overweight Rationale of overweight views: Global economic growth momentum remains solid, driving global equity markets to deliver positive returns over the long term. Overall, support from still loose accommodative monetary policy and fiscal policy (if needed) will, in the medium and longer term, likely outweigh any headwinds from more modest Chinese growth, US and eurozone monetary policy normalisation, and political uncertainty in many regions.

Risks to consider: Fairly narrow implied equity premia (excess return over cash) limit the ability of the market to absorb bad news. Episodic volatility may be triggered by concerns surrounding Chinese growth, US economic policy, and/or a potentially more rapid than expected Fed or ECB tightening cycle, coupled with political risks. A notable and persistent deterioration of the global economic outlook could also dampen our view.
US Neutral Positive factors: US profits data has shown improvement amid a broadly robust economic backdrop. Despite signs of legislative deadlock in Washington, fiscal stimulus under the Trump administration presents an upside risk to earnings. Overall, our measure of the implied risk premium (excess returns over cash) remains consistent with a neutral positioning.

Risks to consider: Relatively high current valuations lead to an implied risk premium that is lower than in many other developed markets. The policy outlook under the Trump administration remains highly uncertain. We have seen slight softness in US whole economy profits. A more rapid than expected tightening of Fed policy also poses risks.
UK Neutral Positive factors: The potential for further sterling weakness supports the UK earnings outlook given a large dependency on foreign earnings. Gains in commodity prices would also be a positive. Overall, current valuations are consistent with our neutral positioning.

Risks to consider: The prospective reward for bearing equity risk in the UK is relatively low compared to other markets. The UK economy is showing signs of weakness amid sterling-induced inflationary pressures and Brexit-related uncertainty.
Eurozone Overweight Rationale of overweight views: Eurozone equities benefit from relatively high implied risk premia and scope for better earnings news given the region’s earlier point in the activity cycle. Furthermore, ultra-low ECB policy interest rates are likely to persist until the end of the decade.

Risks to consider: Valuations have become less attractive following the rally over the last year. Political risks also remain amid looming Italian general elections and uncertainty over Brexit negotiations. A weaker UK economy may dent exports to a significant trading partner. ECB monetary policy may also be less accommodative than expected.
Japan Overweight Rationale of overweight views: Relative valuations and risk premia are attractive, in our view, whilst the Bank of Japan’s (BoJ) very loose monetary policy and the government’s recent fiscal stimulus may boost earnings. Large corporate cash reserves provide firms with the scope to boost dividends or engage in stock repurchases. Earnings momentum remains positive.

Risks to consider: Although there has been a pick-up in investment, domestic economic fundamentals are relatively sluggish.
Emerging Markets

(EM)
Overweight Rationale of overweight views: EM economic growth momentum continues to look good (especially relative to stable growth in DM). Based on current pricing, we also think there is still significant potential for (selected) EM currency to appreciate over the medium term. Unhedged exposures to EM Asia offer the best risk-adjusted rewards, in our view.

Risks to consider: Aggregate EM equity valuations no longer look anomalously cheap. There could be some near-term volatility as worries persist around the uncertain path for future Fed tightening, the potential for increased trade protectionism, economic transition in China, and the robustness of the global economy as a whole. Geopolitical uncertainty also poses risks.
Asia ex Japan Overweight Rationale of overweight views: Return on equity is recovering, helped by more efficient use of cash on balance sheets and industry consolidation. Improving earnings and profitability, albeit with slowing momentum, amid solid economic growth, lower interest costs, and high liquidity are positive. Structural/corporate governance reforms are potential catalysts in some markets. We think valuations are reasonable.

Risks to consider: A sharp rise in Treasury yields is a key risk. Fed balance-sheet reduction and ECB tapering could raise uncertainty. US protectionist policies remain a major risk. Other risks include geopolitical events; commodity-price and/or currency volatility; a fragile or faltering global growth recovery; and renewed concerns about China’s growth, policy and financial risks.
CEE & Latam Neutral Positive factors: Brazil exited recession in Q1 and is embarking on an ambitious reform agenda, whilst Mexico’s economy is resilient. We believe Poland, Russia and Hungary offer attractive risk premia.

Risks to consider: Geopolitical tensions are also high and unpredictable. High local cash rates and sovereign yields in many countries diminish the case for bearing equity risk.
Government bonds
Developed

Markets (DM)
Underweight Rationale of underweight views: Prospective returns still look low relative to competing asset classes. In a bond-unfriendly environment (strong global activity, the risk of cyclical inflationary pressures, and gradual Fed/ECB policy normalisation), global bond yields could move higher still.

Positive factors: Government bonds still provide diversification benefits and reduce volatility within our multi-asset portfolios. Meanwhile, “secular stagnation” forces are powerful (ageing populations, low productivity and investment), and the global pool of safety assets is limited.
US Underweight Rationale of underweight views: The US labour market is at (or close to) full employment so underlying inflationary pressures are likely to build, especially if fiscal stimulus materialises. In addition, prospective returns still look low relative to competing asset classes.

Positive factors: Today’s environment of “price stability” means that the term premium (compensation for bearing duration risk) may be capped at a lower level than historically.
UK Underweight Rationale of underweight views: Although the UK economy could slow, boosting safe-haven demand for gilts, we think current valuations are extreme.

Positive factors: Amid downside risks to growth, UK monetary policy is likely to stay accommodative for a longer period.
Eurozone Underweight Rationale of underweight views: Similarly, core European bonds are overvalued, in our view. A key risk is the likelihood of further tapering of the ECB APP after December 2017.

Positive factors: Core inflationary pressures in the region remain subdued, which should keep accommodative monetary policy in place for an extended period of time.
Japan Underweight Rationale of underweight views: Japanese government bonds (JGBs) are overvalued, in our view. The BoJ has also recently reduced the amount of its JGB purchases.

Positive factors: The “Yield Curve Control” framework should limit volatility and reduce the risk of higher yields in the near-term.
Emerging markets (EM) Overweight Rationale of overweight views: Despite the recent strong performance, most countries offer high prospective returns, especially relative to the opportunity set. Our estimate of the sustainable return on EM currencies reinforces our choice to hold this position unhedged.

Risks to consider: A more aggressive than expected tightening of Fed policy.
Corporate bonds
Global investment grade (IG) Underweight Rationale of underweight views: Low implied credit premia mean that the margin of safety against negative shocks, such as a slight deterioration in the data or default outlook, is very thin. Given current pricing, we think there are better opportunities in other risky asset classes e.g. equities.

Positive factors: The macro environment remains supportive for credits – implied recession probabilities are near zero. The risk of defaults and downgrades appear limited for now.
USD investment grade Underweight Rationale of underweight views: Apart from low implied credit premia, the “duration” of US IG corporate bonds — a measure of their sensitivity to shifts in underlying interest rates — is at record highs, making them vulnerable to a more aggressive pace of Fed tightening.

Positive factors: US investment grade debt looks more attractive than European credit. Carefully selected US credit may outperform.
EUR and GBP investment grade Underweight Rationale of underweight views: Alongside a compressed credit risk premium, EUR IG prospective returns are also weighed down by a negative duration risk premium i.e. we are being penalised for bearing interest-rate risk.

Positive factors: For the time being, the ECB’s corporate bond-buying programme remains supportive. Default rates also remain low.
Asia Neutral Positive factors: Within the IG universe, the carry offered by Asian credits looks attractive relative to DM. Our measure of the implied credit risk premium is also relatively high. Accelerating underlying activity in EM Asia and a neutral monetary policy stance in most countries is also supportive.

Risks to consider: A more aggressive than expected Fed policy normalisation poses a key risk, particularly for corporates who borrow in US dollars. Risks from rising protectionism cannot be ignored either, while the extent of Chinese leverage remains a long-term issue.
Global

high-yield
Neutral

Positive factors: Corporate fundamentals are improving following a pick-up in the global activity cycle. Defaults remain comparatively low and are likely to be contained to commodity-related sectors. We prefer higher-rated HY bonds.

Risks to consider: Further credit-spread compression leaves a thin margin of safety. We are neutral with a negative bias.
US Neutral Positive factors: Broad-based acceleration in US economic activity continues to support corporate fundamentals. Default rates are relatively low and appear to have peaked as energy-related worries subside.

Risks to consider: Substantial risk-premium compression leaves a thin margin of safety. Current pricing is vulnerable to even a slight deterioration in the data or default outlook. A sustained fall in commodity prices and a more aggressive Fed tightening cycle all pose key risks.
Europe Neutral Positive factors: The robust eurozone recovery, coupled with spill-over effects from the ECB Asset Purchase Programme (APP) remain supportive.

Risks to consider: The ECB APP, which has so far been positive for this asset class, is likely to be tapered in 2018. The carry offered in Euro HY has declined in 2017 and now looks less attractive when compared to European equities. Overall, our measure of prospective risk-adjusted returns in EUR HY remains consistent with a neutral positioning.
Asia Neutral Positive factors: The carry offered by Asian High Yield looks attractive given the alternatives, with relatively high prospective risk-adjusted returns. Economic momentum continues to build and inflationary pressures appear to have mostly stabilised.

Risks to consider: A Fed error in its normalisation of monetary policy poses a key risk, particularly for corporates who borrow in US dollars. Risks from rising protectionism cannot be ignored either, while the extent of Chinese leverage remains a long-term issue.
Other
Gold Neutral Positive factors: Gold futures can offer reasonable diversification benefits to our multi-asset portfolios and have some inflation-hedging characteristics.

Risks to consider: Based on our expected returns framework, prospective returns on gold futures look poor today given current market pricing. This is because there is a large negative expected roll yield (the cost of renewing futures contracts) and a negative expected spot price return.
Other commodities Neutral Positive factors: Commodity futures can offer reasonable diversification benefits to our multi-asset portfolios and have some inflation-hedging characteristics.

Risks to consider: Based on our expected returns framework, prospective returns on commodity futures look poor today given current market pricing. This is primarily because there is a large negative expected roll yield (the cost of renewing futures contracts).
Real estate Neutral Positive factors: Based on our dividend growth assumptions and current yields, which offer a premium of around 1.4 per cent points above the dividend yield from wider equities, we believe real estate equities are priced to deliver reasonably attractive long-run returns compared to developed-marked government bonds. In the long run, rents are positively related to wider economic growth and offer a partial inflation hedge.

Risks to consider: The US has underperformed other listed property markets over the last 12 months. Concerns over the health of some retailers have dragged down retail-oriented Real Estate Investment Trusts. In this environment, we believe higher-quality malls and shopping centres are likely to outperform stocks with weaker portfolios. The UK's decision to leave the EU has reduced rental growth prospects, especially in central London, and increased uncertainty around future occupier demand.

Source: HSBC Global Asset Management. All numbers rounded to one decimal place

Past performance is not an indication of future returns.

“Goldilocks” economic backdrop continues

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Markets: global equities gained in September; DM government bonds fell; crude oil prices rose as US refineries reopened

  • Global equities rose in September amid easing geopolitical concerns, whilst higher oil prices and developed market government bond yields boosted energy and financial stocks. The MSCI AC World index closed 1.9 per cent higher over the month.
  • The outperformance of European stocks was supported by a weaker euro against the US dollar, with the latter gaining on the back of renewed optimism over US tax reform. Elsewhere, EM stocks performed less well, with the MSCI EM up 0.3 per cent.
  • Meanwhile DM government bonds and gold sold off as the Fed maintained its expectation of further rate hikes in the coming quarters. UK gilts saw a particularly large decline as the Bank of England struck a hawkish tone at its September meeting.
  • Finally, crude oil prices rose over the month as US refineries reopened, and as OPEC and its allies signalled another extension of their output-cut deal (all data above as of close of 29 September in local currency, price return, month-to-date terms).

US: Trump unveils tax plan; Fed signals another rate hike in December

  • At its September meeting, the Fed left interest rates unchanged and confirmed that it would begin unwinding its balance sheet in October. The new "dot plot" still points to one more rate hike by year-end, whilst the terminal rate was reduced to 2.75 per cent.
  • US President Trump unveiled a "framework" for tax reform, proposing to cut the official corporate tax rate to 20 per cent from 35 per cent. The plan would also simplify the tax code, reducing the number of individual income tax brackets to three from seven.
  • Disappointingly for the Fed, core personal consumption expenditure (PCE) unexpectedly fell to 1.3 per cent year-on-year (yoy) in August (1.4 per cent previously). Nevertheless, Fed chair Yellen warned in a speech against tightening policy "too gradually".
  • Other hard data for August (non-farm payrolls, retail sales and home sales) were softer than expected while Q2 GDP was revised up. Meanwhile, sentiment data for September, such as ISM and consumer sentiment surveys, remain at healthy levels.

Europe: ECB sets the stage for October announcement on next step for QE policy; Bank of England strikes hawkish tone

  • The ECB continues to acknowledge the strength of the eurozone economy. At its September meeting, it upgraded this year’s growth forecast to 2.2 per cent. Importantly, the European Commission’s measure of consumer confidence is at a multi-year high.
  • However, the ECB is making little progress in reaching its inflation target. Core inflation has failed to breach the 1.2 per cent level since early 2013. Most significantly, the continuing strength of the euro presents a significant headwind to inflationary pressures.
  • Nevertheless, the ECB remains likely to taper its QE programme in 2018. This decision will be supported by (i) robust economic growth; (ii) scarcity in the government bond market and; (iii) Draghi’s conviction that inflation will eventually converge to target.
  • The “bulk” of decision on QE is expected at the October meeting. However, given the inflation backdrop, the ECB is likely to act very cautiously, for example by not pre-announcing the end-date of the programme, or the profile of tapering down to zero.
  • In the UK, the Bank of England struck a hawkish tone at its September meeting, with the minutes stating “a majority” of members believed that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”.

Asia: India mulls policy levers to help boost growth; Bank of Japan is likely to maintain ultra-loose policy stance

  • China’s moderate growth slowdown partly reflects efforts to reduce excess capacity, leverage and housing inventory, as well as to contain financial risks. These efforts should help improve the quality and sustainability of the country’s economic development.
  • India’s economic activity has been weakened by the transient supply shock from demonetisation and implementation of the Goods and Services Tax (GST). Consequently, the Indian government is mulling policy levers to help boost economic growth.
  • In Japan, given the lack of progress in terms of boosting inflation, and the uncertainty surrounding the sustainability of the recent pickup in GDP growth, the Bank of Japan is likely to maintain its ultra-loose monetary policy stance.

Other EM: growth continues but pockets of weakness linger

  • Brazil’s economy grew for the second straight quarter in Q2, although the pace (+0.2 per cent qoq) was lower than in Q1. Nevertheless, upbeat data for July (industrial production and retail sales) suggest economic activity has had a solid start to Q3.
  • Russia's central bank cut rates by 50bps to 8.5 per cent in September as inflation fell to a post-Soviet low of 3.3 per cent yoy in August. A stabilising economy and prudent fiscal policy prompted a major rating agency to upgrade the country outlook to "positive".
  • Turkish assets (equities, bonds, lira) fell sharply in August on renewed political instability at the border. Meanwhile, the central bank left rates unchanged, stating that policy needs to be kept tight until the inflation outlook improves.
  • The South African Reserve Bank (SARB) left the repurchase rate unchanged at 6.75 per cent as it assessed that the "balance of risks has deteriorated". The decision was a close call, with three out of six voting for a reduction by 25 basis points.

Source: HSBC Global Asset Management. All numbers rounded to one decimal place

Past performance is not an indication of future returns.

Global Strategic Asset Allocations

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Global Strategic Asset Allocations (as at 31 August 2017)

Global equities edged up slightly in August, buoyed by continuing upbeat global economic data and strong corporate earnings results. Relative to the opportunity set, we believe global equities offer the best reward for backing an environment of upbeat growth and low inflation, and supports an overweight allocation. We maintain our relative preference for European and Japanese equities which offer a better carry opportunity, in our view.

In the credit space, spreads have compressed substantially over the past 12 months and we don’t find the market-implied odds for taking credit risk particularly attractive. Low implied credit premia mean that the margin of safety is now very thin and provides little insulation against negative shocks. We continue to advocate an underweight positioning for US and European investment-grade corporate debt. Meanwhile, we retain a neutral stance on global high-yield credits.

Finally, developed market government bond valuations remain extreme, making them sensitive to any gradual inflationary pressures, a policy error or a sentiment shock, in our view. We remain underweight in this asset class.

Within the allocations of our global multi-asset model portfolios, the underweight in DM government bonds is only significantly visible within the model portfolio for Risk Profile 2, where the lower volatility target prevents too high an allocation to global equities.

Risk Profile 2 – Global Multi-Asset Model Portfolio

Asset Class Current Model Portfolio Reference SAA Portfolio Tilt (Aug 2017) Portfolio Tilt Change
Global Equities 25.0% 23.0% 2.0% 1.0%
Global Government Bonds 14.0% 18.0% -4.0% 0.5%
DM Government Bonds 5.5% 11.0% -5.5% 0.0%
EM Government Bonds 8.5% 7.0% 1.5% 0.5%
Global Corporate Bonds 52.5% 54.0% -1.5% -0.5%
Global Investment Grade 42.0% 43.0% -1.0% 0.0%
Global High Yield 6.0% 6.0% 0.0% 0.0%
EM Debt (Hard Currency) 4.5% 5.0% -0.5% -0.5%
Global Real Estate 4.0% 4.0% 0.0% 0.0%
Cash 4.5% 1.0% 3.5% -1.0%
Total 100.0% 100.0% 0.0% 0.0%
Target Volatility 5 - 8%


Risk Profile 3 – Global Multi-Asset Model Portfolio

Asset Class Current Model Portfolio Reference SAA Portfolio Tilt (Aug 2017) Portfolio Tilt Change
Global Equities 51.5% 49.5% 2.0% 1.0%
Global Government Bonds 11.0% 12.5% -1.5% 0.5%
DM Government Bonds 2.0% 5.0% -3.0% 0.0%
EM Government Bonds 9.0% 7.5% 1.5% 0.5%
Global Corporate Bonds 29.5% 32.0% -2.5% -0.5%
Global Investment Grade 19.0% 21.0% -2.0% 0.0%
Global High Yield 6.0% 6.0% 0.0% 0.0%
EM Debt (Hard Currency) 4.5% 5.0% -0.5% -0.5%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 3.0% 1.0% 2.0% -1.0%
Total 100.0% 100.0% 0.0% 0.0%
Target Volatility 8 - 11%

Source: HSBC Global Asset Management. All numbers rounded to one decimal place

Past performance is not an indication of future returns.


Risk Profile 4 – Global Multi-Asset Model Portfolio

Asset Class Current Model Portfolio Reference SAA Portfolio Tilt (Aug 2017) Portfolio Tilt Change
Global Equities 75.0% 73.0% 2.0% 1.0%
Global Government Bonds 9.0% 7.5% 1.5% 0.5%
DM Government Bonds 0.0% 0.0% 0.0% 0.0%
EM Government Bonds 9.0% 7.5% 1.5% 0.5%
Global Corporate Bonds 10.0% 13.5% -3.5% -0.5%
Global Investment Grade 0.5% 3.5% -3.0% 0.0%
Global High Yield 5.0% 5.0% 0.0% 0.0%
EM Debt (Hard Currency) 4.5% 5.0% -0.5% -0.5%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 1.0% 1.0% 0.0% -1.0%
Total 100.0% 100.0% 0.0% 0.0%
Target Volatility 11 - 14%

The above ‘Current Portfolio’ is based on regional HSBC Global Asset Management Asset Allocation meetings held throughout September 2017. The ‘SAA Portfolio’ is the result of HSBC Global Asset Management’s portfolio optimisation process. These model portfolios are expressed in USD.

Key Terms

  • Strategic Asset Allocation Portfolio: Within AMG’s multi-asset investment process, the ‘SAA’ refers to the ‘Strategic Asset Allocations’, which are generated through optimising long-term estimates of both expected return and covariance. These form the portfolios’ reference allocation for each risk level.
  • Current Portfolio: The ‘Current Portfolio’ represents the portfolio’s current target exposure. This reflects any active positions currently held in the portfolio (i.e. ‘over/under weight’ positions relative to the SAA).
  • Portfolio Tilt: The difference between the ‘Current Portfolio’ and ‘SAA Portfolio’ allocations. Positive values reflect overweight exposure i.e. where a positive outlook on a particular asset class is currently held. Conversely, negative values reflect underweight positions i.e. where the team currently maintain a more cautious outlook.
  • Portfolio Tilt Change: The change in Portfolio Tilts from the previous Multi-Asset Strategy meeting.

Risk Profiles

Each of the three portfolios outlined above match different customer risk profiles, as defined by their target long-term volatility bands:

  • Risk Profile 2 has a long-term target volatility of 5-8 per cent. This portfolio typically has a substantial allocation to fixed income investments and some allocations to growth-oriented investments such as equities.
  • Risk Profile 3 has a long-term target volatility of 8-11 per cent. This portfolio typically has allocations to both fixed income investments and growth-oriented investments such as equities.
  • Risk Profile 4 has a long-term target volatility of 11-14 per cent. This portfolio typically has a high allocation to growth-oriented investments with higher risk levels.

Note:
The ‘Strategic Asset Allocations’ detailed above may sometimes appear to differ from the ‘Long-term Asset Class positioning’ table on pages 2 and 3 primarily due to portfolio constraints which include achieving portfolio volatility within the target long-term volatility bands and minimum and maximum asset class weights.

The above ‘Current Portfolio’ allocations are based on HSBC Global Asset Management’s current outlook and portfolio positioning. These positions are revisited on a monthly basis. The allocations are for illustrative purposes and are designed to be broadly representative of our current multi-asset positioning. Actual portfolio positioning may differ by product or client mandate due to manager discretion, local requirements, portfolio constraints and other additional factors.

The ‘Current Portfolio’ allocations do not consider the investment objectives, risk tolerance or financial circumstances of any particular client. They should not be relied upon as investment advice, research, or a recommendation by HSBC Global Asset Management. Asset allocation and diversification may not protect against market risk, loss of principal or volatility of returns.

The reference index for ‘Equities’ is the MSCI All Country World Index (ACWI), which includes both developed and emerging market equities. The reference index for ‘Real Estate’ is the FTSE EPRA/NAREIT Developed Index, which is designed to track the performance of listed real estate companies and Real Estate Investment Trusts (REITs).

Source: HSBC Global Asset Management. All numbers rounded to one decimal place

Past performance is not an indication of future returns.

Market Data

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  Close MTD Change (%) 3M Change (%) 1-year Change (%) YTD Change (%) 52-week High 52-week Low Fwd P/E (X)
Equity Indices
World
MSCI AC World Index (USD) 487 1.8 4.5 16.6 15.4 488 403 17.1
North America
US Dow Jones Industrial Average 22,405 2.1 5.3 23.5 13.4 22,420 17,884 18.4
US S&P 500 Index 2,519 1.9 4.1 17.1 12.5 2,519 2,084 19.3
US NASDAQ Composite Index 6,496 1.0 5.7 23.3 20.7 6,498 5,034 24.3
Canada S&P/TSX Composite Index 15,635 2.8 2.8 6.0 2.3 15,943 14,468 17.6
Europe
MSCI AC Europe (USD) 478 3.1 5.5 19.2 19.6 479 374 15.6
Euro STOXX 50 Index 3,595 5.1 3.6 20.2 9.2 3,667 2,923 15.3
UK FTSE 100 Index 7,373 -0.8 0.3 6.6 3.2 7,599 6,677 15.3
Germany DAX Index* 12,829 6.4 3.3 23.3 11.7 12,952 10,175 14.2
France CAC-40 Index 5,330 4.8 3.4 19.9 9.6 5,442 4,343 15.7
Spain IBEX 35 Index 10,382 0.8 -1.4 18.0 11.0 11,184 8,512 14.4
Asia Pacific
MSCI AC Asia Pacific ex Japan (USD) 530 -0.5 4.1 16.2 24.2 546 419 14.4
Japan Nikkei-225 Stock Average 20,356 3.6 0.7 21.9 6.5 20,481 16,112 17.5
Australian Stock Exchange 200 5,682 -0.6 -2.3 3.8 0.3 5,957 5,052 15.9
Hong Kong Hang Seng Index 27,554 -1.5 6.1 16.1 25.2 28,248 21,489 12.6
Shanghai Stock Exchange Composite Index 3,349 -0.4 5.0 11.7 7.9 3,392 2,993 14.7
Hang Seng China Enterprises Index 10,910 -3.4 4.6 11.4 16.1 11,462 9,117 8.4
Taiwan TAIEX Index 10,330 -2.4 -0.9 11.4 11.6 10,664 8,880 14.6
Korea KOSPI Index 2,394 1.3 0.0 15.7 18.2 2,453 1,931 10.3
India SENSEX 30 Index 31,284 -1.4 1.4 12.4 17.5 32,686 25,718 20.1
Indonesia Jakarta Stock Price Index 5,901 0.6 1.2 8.6 11.4 5,936 5,023 17.6
Malaysia Kuala Lumpur Composite Index 1,756 -1.0 -0.9 5.1 6.9 1,797 1,614 16.4
Philippines Stock Exchange PSE Index 8,171 2.7 4.9 5.9 19.5 8,322 6,499 20.1
Singapore FTSE Straits Times Index 3,220 -1.7 -1.2 11.6 11.8 3,355 2,761 14.9
Thailand SET Index 1,673 3.5 6.0 12.2 8.4 1,691 1,343 16.9
Latam
Argentina Merval Index 26,078 10.6 21.5 55.8 54.1 26,175 15,189 15.3
Brazil Bovespa Index* 74,294 4.9 19.4 27.3 23.4 76,420 56,829 14.3
Chile IPSA Index 5,342 3.7 12.9 31.8 28.7 5,351 4,007 20.8
Colombia COLCAP Index 1,488 0.4 2.0 10.6 10.0 1,509 1,271 16.4
Mexico Index 50,346 -1.7 2.3 5.6 10.3 51,772 43,999 18.6
EEMEA
Russia MICEX Index 2,077 2.7 10.4 4.1 -7.0 2,294 1,775 7.2
South Africa JSE Index 55,580 -1.7 8.2 5.5 9.7 56,897 48,936 15.7
Turkey ISE 100 Index* 102,908 -6.5 2.7 33.5 31.7 110,531 71,793 8.8

*Indices expressed as total returns. All others are price returns.

Equity Indices - Total Return 3-month Change (%) YTD Change (%) 1-year Change (%) 3-year Change (%) 5-year Change (%)
Global equities 5.0 17.3 18.9 23.7 62.5
US equities 4.5 13.9 18.7 32.7 88.1
Europe equities 6.0 22.5 22.5 13.2 46.1
Asia Pacific ex Japan equities 5.2 26.9 19.4 21.6 38.4
Japan equities 3.4 14.3 12.8 23.7 65.5
Latam equities 15.6 26.7 24.5 -1.2 -9.3
Emerging Markets equities 7.6 27.8 21.1 15.0 21.6

All total returns quoted in USD terms.
Data sourced from MSCI AC World Total Return Index, MSCI USA Total Return Index, MSCI AC Europe Total Return Index, MSCI AC Asia Pacific ex Japan Total Return Index, MSCI Japan Total Return Index, MSCI Latam Total Return Index and MSCI Emerging Markets Total Return Index.

Bond indices - Total Return Close MTD Change (%) 3-month Change (%) 1-year Change (%) YTD Change (%)
BarCap GlobalAgg (Hedged in USD) 510 -0.5 0.6 -0.3 2.2
JPM EMBI Global 804 0.0 2.3 4.1 8.7
BarCap US Corporate Index (USD) 2,868 -0.2 1.2 1.9 5.2
BarCap Euro Corporate Index (Eur) 245 -0.2 1.1 0.5 1.8
BarCap Global High Yield (USD) 465 0.7 2.3 8.8 7.7
Markit iBoxx Asia ex-Japan  Bond Index (USD) 195 -0.1 1.3 1.9 4.8
Markit iBoxx Asia ex-Japan High-Yield Bond Index (USD) 250 0.6 2.5 6.1 6.2

Total return includes income from dividends and interest as well as appreciation or depreciation in the price of an asset over the given period

Bonds Close End of Last mth. 3-months Ago 1-year Ago Year End 2016
US Treasury yields (%)
3-Month 1.04 0.99 1.02 0.25 0.50
2-Year 1.48 1.33 1.37 0.73 1.19
5-Year 1.94 1.70 1.85 1.12 1.93
10-Year 2.33 2.12 2.27 1.56 2.44
30-Year 2.86 2.73 2.81 2.28 3.07
Developed market 10-year bond yields (%)
Japan 0.06 0.00 0.06 -0.09 0.04
UK 1.36 1.03 1.25 0.72 1.24
Germany 0.46 0.36 0.45 -0.12 0.20
France 0.74 0.66 0.80 0.18 0.68
Italy 2.11 2.04 2.15 1.21 1.81
Spain 1.60 1.55 1.52 0.91 1.38
Currencies (vs USD) Latest End of last mth. 3-mths Ago 1-year Ago Year End 2016 52-week High 52-week Low
Developed markets
EUR/USD 1.18 1.19 1.14 1.12 1.05 1.21 1.03
GBP/USD 1.34 1.29 1.30 1.30 1.23 1.37 1.18
CHF/USD 1.03 1.04 1.05 1.04 0.98 1.06 0.97
CAD 1.25 1.25 1.30 1.31 1.34 1.38 1.21
JPY 112.5 110.0 112.2 101.0 117.0 118.7 101.2
AUD 1.28 1.26 1.30 1.31 1.39 1.40 1.23
NZD 1.39 1.39 1.37 1.38 1.44 1.47 1.32
Asia
HKD 7.81 7.83 7.81 7.76 7.76 7.83 7.75
CNY 6.65 6.59 6.79 6.67 6.95 6.96 6.44
INR 65.28 63.91 64.63 66.86 67.92 68.86 63.57
MYR 4.22 4.27 4.29 4.12 4.49 4.50 4.10
KRW 1,145 1,128 1,141 1,099 1,206 1,212 1,100
TWD 30.32 30.17 30.40 31.38 32.33 32.45 29.90
Latam
BRL 3.16 3.15 3.30 3.26 3.26 3.51 3.04
COP 2,938 2,946 3,048 2,893 3,002 3,208 2,831
MXN 18.25 17.89 18.04 19.52 20.73 22.04 17.45
EEMEA
RUB 57.55 58.04 59.42 63.08 61.54 66.87 55.70
ZAR 13.56 13.00 13.02 13.89 13.74 14.65 12.31
TRY 3.56 3.45 3.53 3.00 3.52 3.94 3.00
Commodities Latest MTD Change (%) 3-month Change (%) 1-year Change (%) YTD Change (% ) 52-week High 52-week Low
Gold 1,280 -3.1 2.8 -3.0 11.1 1,358 1,121
Brent Oil 57.5 9.9 21.3 16.9 1.3 59 44
WTI Crude Oil 51.7 9.4 15.0 8.0 -3.8 55 42
R/J CRB Futures Index 183 1.2 6.5 -1.5 -4.9 196 166
LME Copper 6,481 -4.5 9.1 33.9 17.1 6,970 4,633


Sources: Bloomberg, HSBC Global Asset Management. Data as at close of business 31 August 2017.

Past performance is not an indication of future returns.

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