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 have upgraded our US and UK equity view to neutral. We remain neutral global equities, although now with a positive bias. Meanwhile, we also retain our underweight stance on developed market (DM) government bonds
  • Global equities rose for a seventh straight month in May, supported by continuing robust economic data releases and generally upbeat earnings reports
  • The May Federal Open Market Committee (FOMC) meeting minutes suggested the Fed is confident enough to raise interest rates again at its June meeting
  • Strong eurozone data amid the victory of Emmanuel Macron in the French elections paves the way for the European Central Bank (ECB) to reduce its asset purchases in 2018
  • April Chinese data showed softer growth momentum following Q1’s strength with activity likely to moderate further this year due to the lagged impact of tightening measures
  • EM assets still look attractive to us, although strong performance in EM equities this year has resulted in valuations that no longer look anomalously cheap

We upgrade our US and UK equity view to neutral

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Consistent with reduced expectations of a US fiscal stimulus package and easing global macro momentum, markets have recently moved to price a softer outlook for global inflation. The cooling of this “reflation trade” has resulted in slightly lower US Treasury yields, boosting the relative attractiveness of US equities. Amid a positive US Q1 earnings season, we now advocate a neutral stance in this asset class. Similarly, we also move to neutral on UK equities as lower gilt yields have improved the relative reward to bearing UK equity risk. Overall, the global implied equity premium – the excess return over bonds ‒ remains little changed. With few signs of a meaningful deterioration in macro fundamentals, we retain our neutral view on global equities, albeit now with a positive bias.

The prevailing economic environment remains bond unfriendly. We are past the peak of loose global monetary policy, whilst the era of fiscal austerity has ended. Also, recent softness in inflation data is unlikely to persist, in our view. Therefore, we retain our underweight positioning in DM government bonds, which we still believe are overvalued. We also maintain our overweight stance on EM assets. However, for EM equities, the investment case has become more about economic and price momentum, alongside the upside offered by cheap currencies.

Equities

Asset Class View View Movement
Global Neutral
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) Neutral
USD IG Neutral
EUR and GBP IG Neutral
Global high-yield 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 May 2017, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 28 April 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 Neutral Positive factors: Global economic growth momentum remains solid, driving global equity markets to deliver positive returns over the long term. Overall, support from accommodative monetary policy and an increased willingness for looser fiscal policy will, in the medium and longer term, likely outweigh any headwinds from more modest Chinese growth, tighter US monetary policy, and political uncertainty in many regions.

Risks to consider: The recent compression of implied equity premia (excess returns over bonds) limits 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 tightening cycle, coupled with political risks. A notable and persistent deterioration of the global economic outlook could also dampen our view.
US Neutral Rationale of view change: Lower yields on US Treasuries make US equities a comparatively more attractive investment, in our view. Meanwhile, the Q1 earnings season has done well, and profits data has shown improvement. Overall, despite record highs in US equities, this suggests a more neutral stance.

Positive factors: Corporate tax reform, looser regulation and fiscal stimulus under the Trump administration present an upside risk to earnings.

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.
UK Neutral Rationale of view change: Lower yields on UK gilts have improved the relative reward to bearing UK equity risk. Positive global economic momentum also supports the UK earnings outlook given a large dependency on foreign earnings.

Positive factors: Further sterling weakness would likely prove supportive given a relative dependence on foreign earnings. Gains in commodity prices would also be a positive.

Risks to consider: We believe the prospective reward to bearing equity risk in the UK is relatively low. The UK economy could slow amid sterling-induced inflationary pressures and Brexit related uncertainty.
Eurozone Overweight Rationale of overweight views: We favour eurozone equities due to their higher implied risk premia and scope for better earnings news given the region’s earlier point in the activity cycle. Furthermore, the monetary backdrop remains supportive, with ultra-low interest rates likely to persist until the end of the decade.

Risks to consider: According to recent polls, the upcoming Italian elections should see the eurosceptic 5-star movement perform well. Also, the outcome of Brexit negotiations is highly uncertain. Brexit-related trade disruptions and/or slower UK GDP growth will likely hit eurozone exports. 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) extremely loose monetary policy and the government’s recent fiscal stimulus package may boost earnings. Large corporate cash reserves provide Japanese firms with the scope to boost dividends or engage in stock repurchases. Earnings momentum is showing signs of picking up.

Risks to consider: Domestic economic fundamentals are relatively sluggish, with an absence of momentum in wage growth, despite tight labour market conditions.
Emerging Markets

(EM)
Overweight Rationale of overweight views: We believe EM equities remain attractive for western-based investors (USD, GBP or EUR based) given our expectation of longer-term currency appreciation. However, we continue to be selective, focusing on countries with strong underlying macro fundamentals, and positive price momentum.

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: Improving earnings and profitability and more efficient use of cash levels on balance sheets support rising returns on equity, amid an export recovery, better domestic growth, and supportive global and regional monetary policy. Structural reforms and shareholder-return policies are potential catalysts in some markets. Valuations look 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 volatility; fragile or faltering global growth recovery; and renewed concerns about China’s growth and financial risks.
CEE & Latam Neutral Positive factors: Brazil is set to exit recession in Q1 and is embarking on an ambitious reform agenda, whilst Mexico’s economy is resilient. Countries, such as Poland, have low levels of US dollar-denominated debt, and along with 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 prospect of fiscal easing), global bond yields could move higher still.

Positive factors: Government bonds still provide diversification benefits and reduce volatility within multi-asset portfolios. Meanwhile, “secular stagnation” forces are powerful (ageing populations, low productivity and investment), and the global pool of safety assets is limited. Therefore, the “normalisation” of bond yields could take several years.
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: We think there is a strong diversification case for owning Treasuries as insurance in case of a worsening global growth picture or the re-emergence of deflationary pressures. Investors also seem to be pricing a significant level of US stimulus.
UK Underweight Rationale of underweight views: Prospective UK gilt returns remain very low. Although the UK economy could slow, any support in this respect may be offset by inflationary pressures.

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 are overvalued, in our view, whilst the BoJ’s commitment to peg 10-year yields close to zero could be re-evaluated.

Positive factors: The “Yield Curve Control” framework should limit volatility and reduce the risk of higher yields in the near-term. Meanwhile, BoJ Governor Kuroda has indicated that cutting policy rates could play a central role in future policy decisions.
Emerging markets (EM) Overweight Rationale of overweight views: The yield available on EM sovereign bonds makes them attractive relative to DM government debt, in our view. Furthermore, our estimate of the sustainable return on EM currencies reinforces our choice to hold this position unhedged.

Risks to consider: Spreads in the EM debt universe are at risk of widening as US policy tightens.
Corporate bonds
Global investment grade (IG) Neutral Positive factors: The prevailing macro environment remains supportive for credits. Implied recession probabilities are near zero – the default outlook appears benign.

Risks to consider: Valuations do not appear anomalously cheap, with low implied credit premia meaning that the margin of safety is now very thin against any negative shocks (such as tighter than expected US monetary policy).
USD investment grade Neutral Positive factors: US investment grade debt looks more attractive relative to European credit. Carefully-selected US credit may outperform.

Risks to consider: Lower relative valuations for USD-denominated credit is offset in the nearer term by the risk of a more aggressive pace of Fed tightening. The US credit cycle is more mature than that in Europe which remains nascent.
EUR and GBP investment grade Neutral Positive factors: The ECB’s corporate bond-buying programme remains supportive. Meanwhile, in the eurozone, the latest survey data suggests a gradual improvement in credit conditions, and default rates remain low. Valuations are still around neutral levels.

Risks to consider: UK credits are vulnerable given the recent completion of the BoE corporate bond buying programme amid downside risks to the UK economic outlook. European credits could be hit as the ECB tapers its APP.
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.

Risks to consider: Further credit spread compression leaves a thin margin of safety. We are neutral with a negative bias
Other
Gold Neutral Positive factors: Fed hikes are likely to remain historically gradual, limiting the opportunity-cost of holding the non-yield generating asset. Rising inflationary pressures could boost hedging demand, whilst high political risks/uncertainty could also be supportive.

Risks to consider: A stronger-than-expected Fed hiking cycle may push the USD higher.
Other commodities Neutral Positive factors: With oil demand growth remaining robust there is scope for the market to continue to rebalance, particularly following OPEC’s November output cut deal (extended to March 2018)

Risks to consider: Oil markets could remain oversupplied, especially if US production remains resilient. Industrial metals remain exposed to the pace of China’s economic rebalancing and global growth.
Real estate Neutral Positive factors: Based on our dividend growth assumptions and current yields, which offer a premium of around 1.3 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 equity markets since the start of the year. Concerns over the health of some retailers has 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.

US Treasury yields dip amid soft inflation data

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Global equities edged up again in May; oil prices fell on OPEC disappointment; 10-year Treasuries gained

Global equities rose for a seventh straight month in May, supported by continuing robust economic data releases and generally upbeat earnings reports. The MSCI AC World index finished 1.3 per cent higher over the month. In the US, the S&P 500 rose 1.2 per cent with volatility driven by political turmoil in Washington that raised doubts about the administration’s ability to implement pro-growth policies. This boosted 10-year US Treasuries (yields fell). In Europe, the Euro Stoxx 50 was roughly flat over the month, whilst the UK’s FTSE 100 outperformed (+4.4 per cent). The MSCI EM also rose (+2.3 per cent), although the MSCI Russia and Brazil both fell sharply. The decline in Russian equities came as oil prices retreated in the wake of OPEC’s meeting on 25 May which disappointed investors who had hoped for deeper or longer cuts to production. Meanwhile, volatility in Brazilian asset prices was predominantly driven by a political scandal engulfing reformist President Michel Temer. Finally, eurozone peripheral government bond spreads narrowed amid receding political risks in the region (all data above as of close of 31 May in local currency, price return, month-to-date terms).

US Q1 GDP print revised upwards with Fed signalling another rate hike in June

US data releases in May remained broadly upbeat. Positively, the second estimate of Q1 GDP was revised upwards, to +1.2 per cent qoq annualised, on the back of a better than expected gain in personal consumption. With the Q1 GDP print likely depressed by temporary factors and seasonal adjustment issues, a rebound is likely in Q2. Crucially, the labour market remains strong, with the April employment report seeing a 211,000 rise in nonfarm payrolls, slightly above expectations, and the unemployment rate declining to 4.4 per cent. However, wage pressures remain subdued, perhaps going some way in explaining recent soft inflation prints. Nevertheless, the May FOMC meeting minutes suggested the Fed is confident enough to raise interest rates again in June – assuming the data holds up – whilst also signalling a gradual unwinding of its balance sheet later this year. A fiscal stimulus package remains the largest upside risk to the economy, although the precise timing and size of this remain uncertain.

Eurozone activity data remains strong; Macron victory paves the way for reduction in ECB purchases in 2018

In the eurozone, Q1 GDP expanded by a solid 0.5 per cent qoq in the second estimate. Confidence surveys remain high going into Q2, pointing to the potential for an acceleration in growth during the quarter. Importantly, household spending is likely to stay upbeat this year as employment gains remain positive (although higher inflation will weigh on real income growth). Elsewhere, net trade should find a boost from strong global demand conditions. Meanwhile, political uncertainty eased this month with the victory of market-friendly Emmanuel Macron in the French presidential elections, which should support confidence in the region. Combined with the strength of recent data, this also paves the way for the European Central Bank (ECB) to further reduce its asset purchases in 2018. However, interest rate increases remain a long way off given the lack of underlying inflationary pressures in the region.

Chinese growth moderates amid regulatory and credit tightening; Japan GDP accelerates in Q1

April Chinese data showed softer growth momentum following Q1’s strength. Growth is likely to moderate further this year due to the lagged impact of liquidity and credit tightening, stricter enforcement of financial regulations, and intensified property tightening measures. However, we believe the government will proceed with financial de-leveraging and regulatory tightening at a measured and calibrated pace to avoid triggering a sharp economic slowdown or financial system instability. Japan’s real GDP expanded by 2.2 per cent qoq annualised (seasonally adjusted) in Q1, up from 1.4 per cent in Q4. This marked the fifth consecutive quarter of positive growth, driven by both external and domestic demand, with firm consumer spending and housing investment. Looking ahead, a weaker yen and uptick in global trade should support exports, and fiscal policy will be supportive. Also, weak inflationary pressures (amid subdued wage growth) should see the Bank of Japan (BoJ) maintain its ultra-loose policy stance.

Economic performance is improving in many major EM countries; Brazilian politics remains volatile

In terms of economic developments during the month, Brazilian data releases continued to point towards a gradual recovery. However, a political scandal engulfing reformist President Michel Temer significantly raises downside risks to much needed reforms being implemented. More positively, however, easing inflationary pressures should allow the Central Bank of Brazil to remain on its easing path. In Mexico, the final release of Q1 GDP came in at 0.7 per cent qoq seasonally adjusted, pushing the annual growth rate to 2.8 per cent yoy (its highest since Q3 2015). Amid peso and fuel price-induced inflationary pressures, the Bank of Mexico remains on a tightening path, raising the overnight rate by another 25bps at its May meeting. In India, a growth recovery post-demonetisation remains on track, led by a revival in consumption, solid external demand, and better infrastructure sector output growth. Following recent downside surprises to inflation, the Reserve Bank of India (RBI) is expected to keep policy on hold at its June meeting.

A mix of synchronised growth and subdued inflation implies a market regime where equities continue to outperform bonds

The macro environment remains supportive for global equities, with the implied equity risk premium on offer still consistent with a neutral positioning. However, we move to a positive bias on this stance, as we have upgraded our US and UK equity view to neutral amid recent gains in US Treasuries and UK gilts which we think has increased the relative attractiveness of bearing equity risk in these two countries. We also maintain a relative preference for Japan and Europe where profits and valuations look relatively attractive. Elsewhere, our market-implied measure of the credit risk premium is still not particularly substantial. However, a mix of positive growth and low inflation should sustain low default and downgrade rates, therefore we remain neutral overall (with a negative bias for the riskier high-yield category). We remain underweight in DM government bonds which we continue to view as being overvalued. Upbeat global activity amid the prospect of fiscal easing and gradual Fed and ECB tightening should see higher yields over time. Nevertheless, Treasuries still have the scope to rally should bad news on growth or deflation materialise.

For emerging markets (EM) equities, strong performance this year has resulted in aggregate EM equity valuations that no longer look anomalously cheap. Therefore, the investment case has changed to be more about economic and price momentum, alongside the upside offered by cheap currencies. From the perspective of a dollar based investor, we think unhedged prospective returns look attractive across much of Asia and parts of EMEA. EM local-currency debt has not rallied as strongly as equities this year, and aggregate yields remain high, particularly relative to developed markets.

Global Strategic Asset Allocations

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Global Strategic Asset Allocations (as at 28 April 2017)

Global equities rose for a sixth straight month in April, with significant gains occurring after Emmanuel Macron obtained the largest share of the vote in the first round of the French presidential elections. The implied equity premia on offer continues to warrant a neutral positioning for global equities, in our view, and we maintain our relative preference for European and Japanese equities which offer a better carry opportunity.

In the credit space, spreads have compressed substantially over the past 12 months amid the risk of tighter than expected US monetary policy. A mix of good growth and low inflation should sustain low default and downgrade rates. We remain neutral for investment grade credit, and neutral with a negative bias for riskier high-yield credit.

Finally, 10-year US Treasuries rose (yields fell) on the back of high global geopolitical tensions, whilst investors continued to assess the prospects of US fiscal stimulus. Eurozone equivalents also rose, with French bonds seeing a particularly large rally after the first round Presidential election result. Overall, valuations in Bunds, Gilts and Japanese government bonds remain extreme and we continue to be structurally underweight in DM government bonds.

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 (April 2017) Portfolio Tilt Change
Global Equities 24.0% 23.0% 1.0% 0.0%
Global Government Bonds 13.5% 18.0% -4.5% -1.0%
DM Government Bonds 5.5% 11.0% -5.5% -1.0%
EM Government Bonds 8.0% 7.0% 1.0% 0.0%
Global Corporate Bonds 54.5% 54.0% 0.5% 0.0%
Global Investment Grade 42.0% 43.0% -1.0% 0.0%
Global High Yield 7.5% 6.0% 1.5% 0.0%
EM Debt (Hard Currency) 5.0% 5.0% 0.0% 0.0%
Global Real Estate 4.0% 4.0% 0.0% 0.0%
Cash 4.0% 1.0% 3.0% 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 (April 2017) Portfolio Tilt Change
Global Equities 50.5% 49.5% 1.0% 0.0%
Global Government Bonds 10.5% 12.5% -2.0% -1.0%
DM Government Bonds 2.0% 5.0% -3.0% -1.0%
EM Government Bonds 8.5% 7.5% 1.0% 0.0%
Global Corporate Bonds 31.5% 32.0% -0.5% 0.0%
Global Investment Grade 19.0% 21.0% -2.0% 0.0%
Global High Yield 7.5% 6.0% 1.5% 0.0%
EM Debt (Hard Currency) 5.0% 5.0% 0.0% 0.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 2.5% 1.0% 1.5% -0.8%
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 (April 2017) Portfolio Tilt Change
Global Equities 74.0% 73.0% 1.0% 0.0%
Global Government Bonds 8.5% 7.5% 1.0% 0.0%
DM Government Bonds 0.0% 0.0% 0.0% 0.0%
EM Government Bonds 8.5% 7.5% 1.0% 0.0%
Global Corporate Bonds 11.5% 13.5% -2.0% 0.0%
Global Investment Grade 0.5% 3.5% -3.0% 0.0%
Global High Yield 6.0% 5.0% 1.0% 0.0%
EM Debt (Hard Currency) 5.0% 5.0% 0.0% 0.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 1.0% 1.0% 0.0% 0.0%
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 May 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).

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) 464 1.9 4.3 15.2 9.9 465 379 16.7
North America
US Dow Jones Industrial Average 21,009 0.3 0.9 18.1 6.3 21,169 17,063 17.3
US S&P 500 Index 2,412 1.2 2.0 15.0 7.7 2,419 1,992 18.6
US NASDAQ Composite Index 6,199 2.5 6.4 25.3 15.1 6,222 4,574 23.7
Canada S&P/TSX Composite Index 15,350 -1.5 -0.3 9.1 0.4 15,943 13,610 16.6
Europe
MSCI AC Europe (USD) 457 3.9 11.0 13.8 14.1 460 354 15.4
Euro STOXX 50 Index 3,555 -0.1 7.1 16.0 8.0 3,667 2,678 15.2
UK FTSE 100 Index 7,520 4.4 3.5 20.7 5.3 7,586 5,789 15.2
Germany DAX Index* 12,615 1.4 6.6 22.9 9.9 12,842 9,214 13.9
France CAC-40 Index 5,284 0.3 8.7 17.3 8.7 5,442 3,956 15.7
Spain IBEX 35 Index 10,880 1.5 13.9 20.4 16.3 11,184 7,580 15.0
Asia Pacific
MSCI AC Asia Pacific ex Japan (USD) 498 2.3 6.8 21.9 16.7 501 395 13.8
Japan Nikkei-225 Stock Average 19,651 2.4 2.8 14.0 2.8 19,998 14,864 17.4
Australian Stock Exchange 200 5,725 -3.4 0.2 6.4 1.0 5,957 5,051 15.9
Hong Kong Hang Seng Index 25,661 4.2 8.1 23.3 16.6 25,835 19,663 12.7
Shanghai Stock Exchange Composite Index 3,117 -1.2 -3.8 6.9 0.4 3,301 2,808 13.7
Hang Seng China Enterprises Index 10,603 3.7 3.0 21.8 12.9 10,705 8,275 8.5
Taiwan TAIEX Index 10,041 1.7 3.0 17.6 8.5 10,122 8,374 14.2
Korea KOSPI Index 2,347 6.4 12.2 18.4 15.8 2,372 1,893 10.2
India SENSEX 30 Index 31,146 4.1 8.4 16.8 17.0 31,255 25,718 18.9
Indonesia Jakarta Stock Price Index 5,738 0.9 6.5 19.6 8.3 5,874 4,754 16.1
Malaysia Kuala Lumpur Composite Index 1,766 -0.1 4.3 8.6 7.6 1,788 1,612 16.6
Philippines Stock Exchange PSE Index 7,837 2.3 8.7 5.9 14.6 8,118 6,499 19.2
Singapore FTSE Straits Times Index 3,211 1.1 3.7 15.0 11.5 3,275 2,703 14.7
Thailand SET Index 1,562 -0.3 0.1 9.6 1.2 1,601 1,343 15.2
Latam
Argentina Merval Index 22,349 6.3 16.9 76.2 32.1 22,624 12,520 10.0
Brazil Bovespa Index* 62,711 -4.1 -5.9 29.4 4.1 69,488 48,067 11.8
Chile IPSA Index 4,856 1.3 11.4 23.4 17.0 4,911 3,847 17.8
Colombia COLCAP Index 1,439 5.0 8.5 11.4 6.5 1,461 1,271 13.8
Mexico Index 48,788 -1.0 4.1 7.3 6.9 50,154 43,902 17.9
EEMEA
Russia MICEX Index 1,900 -5.8 -6.7 0.1 -14.9 2,294 1,842 6.1
South Africa JSE Index 53,563 -0.5 4.7 -0.6 5.7 54,717 48,936 14.7
Turkey ISE 100 Index* 97,542 3.0 11.5 25.4 24.8 98,795 70,426 9.4

*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 5.1 11.0 17.5 16.8 72.4
US equities 2.4 8.6 16.9 30.6 97.8
Europe equities 12.6 16.2 17.0 -0.6 62.9
Asia Pacific ex Japan equities 7.5 17.6 25.3 11.1 46.1
Japan equities 3.7 8.8 15.0 22.4 64.2
Latam equities -1.8 9.4 27.3 -15.8 -14.8
Emerging Markets equities 7.9 17.3 27.4 4.9 24.8

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) 508 0.6 1.2 1.8 1.7
JPM EMBI Global 787 0.8 2.8 9.7 6.5
BarCap US Corporate Index (USD) 2,822 1.1 2.0 4.3 3.5
BarCap Euro Corporate Index (Eur) 244 0.4 0.5 2.8 1.2
BarCap Global High Yield (USD) 455 0.8 2.2 13.3 5.3
Markit iBoxx Asia ex-Japan  Bond Index (USD) 192 0.4 1.2 4.1 3.2
Markit iBoxx Asia ex-Japan High-Yield Bond Index (USD) 243 -0.8 0.3 9.1 3.5

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 0.97 0.79 0.60 0.28 0.50
2-Year 1.28 1.26 1.26 0.88 1.19
5-Year 1.75 1.81 1.93 1.37 1.93
10-Year 2.20 2.28 2.39 1.85 2.44
30-Year 2.86 2.95 3.00 2.65 3.07
Developed market 10-year bond yields (%)
Japan 0.04 0.01 0.05 -0.12 0.04
UK 1.05 1.08 1.15 1.43 1.24
Germany 0.30 0.32 0.21 0.14 0.20
France 0.73 0.83 0.89 0.48 0.68
Italy 2.19 2.28 2.08 1.35 1.81
Spain 1.54 1.64 1.64 1.47 1.38
Currencies (vs USD) Latest End of last mth. 3-months- Ago 1-year Ago Year End 2016 52-week High 52-week Low
Developed markets
EUR/USD 1.12 1.09 1.06 1.11 1.05 1.14 1.03
GBP/USD 1.29 1.30 1.24 1.45 1.23 1.50 1.18
CHF/USD 1.03 1.01 0.99 1.01 0.98 1.05 0.97
CAD 1.35 1.37 1.33 1.31 1.34 1.38 1.27
JPY 110.8 111.5 112.8 110.7 117.0 118.7 99.0
AUD 1.35 1.34 1.31 1.38 1.39 1.40 1.29
NZD 1.41 1.46 1.39 1.48 1.44 1.48 1.34
Asia
HKD 7.79 7.78 7.76 7.77 7.76 7.80 7.75
CNY 6.82 6.89 6.87 6.59 6.95 6.96 6.55
INR 64.51 64.25 66.69 67.26 67.92 68.86 63.93
MYR 4.28 4.34 4.44 4.13 4.49 4.50 3.93
KRW 1,120 1,138 1,130 1,192 1,206 1,212 1,090
TWD 30.12 30.21 30.68 32.62 32.33 32.62 29.93
Latam
BRL 3.23 3.18 3.11 3.61 3.26 3.61 3.04
COP 2,916 2,943 2,926 3,090 3,002 3,208 2,822
MXN 18.62 18.82 20.11 18.47 20.73 22.04 17.90
EEMEA
RUB 56.62 56.93 58.38 66.72 61.54 67.70 55.70
ZAR 13.12 13.37 13.13 15.71 13.74 15.68 12.31
TRY 3.53 3.55 3.65 2.95 3.52 3.94 2.84
Commodities Latest MTD Change (%) 3-month Change (%) 1-year Change (%) YTD Change (% ) 52-week High 52-week Low
Gold 1,269 0.1 1.7 4.4 10.1 1,375 1,121
Brent Oil 50.3 -2.7 -9.5 1.2 -11.5 58 42
WTI Crude Oil 48.3 -2.0 -10.5 -1.6 -10.1 55 39
R/J CRB Futures Index 180 -1.1 -5.7 -3.4 -6.6 196 177
LME Copper 5,682 -0.9 -4.9 21.6 2.6 6,204 4,484


Sources: Bloomberg, HSBC Global Asset Management. Data as at close of business 28 April 2017.

Past performance is not an indication of future returns.

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