Foreword

close

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

open
  • We remain neutral global equities and corporate bonds, and underweight developed market (DM) government bonds. We also continue to be overweight local currency emerging market (EM) government bonds
  • Global equities edged higher for another month in March, supported by a continuation of upbeat economic data releases, and despite continued US policy uncertainty
  • As expected, the March US Federal Open Market Committee (FOMC) meeting saw a 25bps hike in the federal funds rate, with a further two rate hikes in 2017 signalled
  • In the eurozone, amid strong activity data and diminished risks of deflation, the European Central Bank (ECB) struck a more hawkish tone at its March meeting
  • China’s National People’s Congress (NPC) highlighted “stability” as 2017’s key objective, as the government strikes a balance between growth and structural reforms
  • EM equities have seen a strong rebound year-to-date, suggesting investors are reacting to positive macro data and may be less concerned over a “hard-Trump” policy agenda

Risk asset rally leaves a thin margin of safety

open

Risk assets have witnessed an impressive rally over recent months, with global equities hitting fresh record highs, high-yield (HY) credit spreads substantially compressing, and EM assets outperforming. This may be attributed to a combination of robust global economic activity, still loose monetary policy, and fiscal policy no longer acting as a drag in a number of economies. Consequently, the pricing of risk assets implies that the market now has a limited ability to absorb bad news – political risks remain high and there is scope for US fiscal stimulus to disappoint. In this context, we remain neutral global equities, though we adopt a negative bias on our neutral global HY stance. We also acknowledge that an extended period of market strength (“irrational exuberance”) is a key risk of a more cautious stance.

For DM government bonds, prospective returns still justify an underweight position. The prevailing macro environment remains bond unfriendly. However, with the possibility of adverse economic or political outcomes, the current pricing of US Treasuries implies a strong diversification case for holding them in a balanced portfolio. For EM, we remain overweight local currency government debt given valuations that are still attractive.


Equities

Asset Class View View Movement
Global Neutral
US Underweight
UK Underweight
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

open

Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout March 2017, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 28 February 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)

open
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, US interest-rate increases and political uncertainty in many regions.
Risks to consider: The recent compression of implied equity premia limits the ability of the market to absorb bad news. Episodic volatility may be triggered by concerns surrounding Chinese growth, uncertainty around 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 Underweight Rationale of underweight views: Relatively high current valuations lead to an implied risk premium that is lower than in other developed markets. The policy outlook under the Trump administration remains highly uncertain.
Positive factors to consider: Corporate tax reform, looser regulation and fiscal stimulus under the Trump administration present an upside risk to earnings.
UK Underweight Rationale of underweight views: The prospective reward to bearing equity risk in the UK is relatively low. Although the macroeconomic backdrop remains resilient following last June’s Brexit vote, the economy faces a number of challenges, including negotiating Brexit. Overall, the risks appear excessive given the skinny risk premium.
Positive factors: The UK economy has been far more resilient following June’s Brexit vote than originally anticipated. Meanwhile, any further sterling weakness may support UK equities going forward given their relatively high dependence on foreign earnings.
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: Rising euroscepticism raises concerns over the European Union’s future, potentially weighing on growth prospects. Slower UK GDP growth may also hit eurozone exports to a significant trading partner. Meanwhile, ECB monetary policy may be less accommodative than expected. Finally, further political uncertainty lies ahead in the form of the French, German and (likely) Italian elections in 2017.
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 mean Japanese firms have 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 personal consumption, 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 which could be shielded from protectionist trade policies.
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: Higher nominal growth supports earnings prospects, amid a better global growth/trade outlook, resilient Chinese activity, and gradualism in global central bank policy action. Return on equity is bottoming out. Sound domestic dynamics, structural reforms, and shareholder-friendly policies are a positive for some markets.
Risks to consider: US president Trump introduces the risk of protectionist policies. Another key risk is a more aggressive Fed hiking cycle and rising US/global yields, putting pressure on Asian FX and compounding capital outflows. Other risks include global/regional political events; commodity-price volatility; and renewed concerns about China’s growth and financial risks.
CEE & Latam Neutral Positive factors: Longer term, we anticipate positive growth differentials with developed markets to be maintained, whilst Brazil’s status as a relatively closed economy offers some insulation from a potential increase in global protectionism. Other countries, such as Poland, have low levels of US dollar-denominated debt.
Risks to consider: Geopolitical tensions are also high and unpredictable, whilst domestic political and macroeconomic fundamentals remain poor in many countries, such as Brazil.
Government bonds
Developed
Markets (DM)
Underweight Rationale of underweight views: Despite the recent government bond selloff, prospective returns still look low relative to competing asset classes. In a bond-unfriendly environment (stronger global activity, the prospect of fiscal easing, and rising headline inflation in many economies), global bond yields could move higher still.
Positive factors to consider: 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 for US Treasuries still look low relative to competing asset classes and we maintain a structural underweight.
Positive factors to consider: We think there is a strong diversification case for owning Treasuries as insurance in case of a worsening global growth picture. Investors seem to be pricing a significant level of US stimulus and the maintenance of positive macro momentum.
UK Underweight Rationale of underweight views: Prospective UK gilt returns remain very low. Although there is still a high likelihood the UK economy will slow in the coming quarters, the compression of yields is likely to be partially offset by higher inflation following the fall in sterling. The Bank of England is also close to the end of its current bond buying programme.
Positive factors to consider: Amid downside risks to growth, UK monetary policy is likely to stay highly 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 to consider: The APP may provide near-term support. Meanwhile, core inflationary pressures and long-term inflation expectations 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. Given the high level of JGB purchases already made, other asset class purchases may be explored.
Positive factors to consider: 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 local currency 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. Macro momentum is improving and implied recession probabilities are near zero – the default outlook appears benign.
Risks to consider: Valuations do not appear anomalously cheap, and we retain a neutral positioning, particularly given the risk of 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 and BoE’s corporate bond-buying programmes remain 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: European and UK credits are vulnerable to a winding down of ECB and BoE corporate bond buying programmes. Stripping out currency effects, GBP-denominated credit for UK-focused names could deteriorate if the UK economy slows.
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 gradual, limiting the opportunity-cost of holding the non-yield generating asset. Rising inflationary pressures could boost inflation, hedging demand, whilst high political risks/uncertainty could also support the yellow metal.
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.
Risks to consider: Oil markets could remain oversupplied if demand growth slows, US production remains resilient, and OPEC cuts aren’t extended. Industrial metals remain exposed to the pace of China’s economic rebalancing and global growth.
Real estate Neutral Positive factors: Over the last six months, real-estate equity performance has lagged general equities, largely on the expectation of higher US interest rates. We believe the market has focused too heavily on real-estate equities as a ‘bond proxy’. Based on our estimates of future dividend growth, we believe global real-estate equities are priced to deliver attractive long-run returns relative to developed-market government bonds.
Risks to consider: Rising interest rates could continue to impact listed real estate negatively in the short term. The UK's decision to leave the EU has reduced rental growth prospects, especially in central London, and increased uncertainty around future occupier demand.

Markets continue to price an improved macro outlook

open

Global equities register another positive month in March; eurozone bonds decline

March saw Global equities edge higher for a fifth straight month, supported by a continuation of upbeat economic data releases, and a slightly more dovish March FOMC meeting than expected. The MSCI AC World index rose 0.8 per cent. Within DM, US equity indices were little changed, weighed on by uncertainty over the US policy outlook (as the Trump administration failed to pass the American Health Care Act through Congress), as well as lower oil prices due to renewed supply glut concerns. US policy concerns also helped push the US dollar lower against most major currencies, with a stronger Japanese yen contributing to weakness in Japanese indices (the Nikkei edged 1.1 per cent lower over the month). European stocks, however, outperformed, with the Euro Stoxx 50 rising 5.5 per cent, supported by receding political risk concerns following a market-friendly outcome in the Dutch elections. Within EM, the MSCI India and China saw another month of solid gains, whilst the MSCI Brazil fell (-2.6 per cent). Finally, 10-year US Treasuries were little changed, although eurozone equivalents declined (yields rose) amid a slightly more hawkish March ECB meeting, offsetting weaker than expected inflation prints (all data above as of close of 31 March in local currency, price return, month-to-date terms).

US activity remains strong amid greater policy uncertainty

As expected, the US Federal Reserve’s March FOMC meeting saw the federal funds rate increase by 25bp to 0.75 per cent - 1.00 per cent, the third rate hike since December 2015. The median estimate of the Fed’s “dot plot” continued to point to two further 2017 rate hikes, with the projected final destination for US rates remaining little changed at 3 per cent. Further monetary policy tightening this year is consistent with an economy that continues to perform very strongly. February’s nonfarm payrolls release showed 235,000 jobs created, with wage growth continuing to trend higher. Meanwhile, consumer sentiment surveys at multi-year highs signal potential upside to spending going forward. Nevertheless, policy deadlock is a key risk to the outlook, especially in light of the American Health Care Act’s failure to pass through congress. Positively, however, US legislators’ focus now turns towards tax reform and fiscal stimulus.

Eurozone data remains very positive, reflected in a more bullish ECB outlook

Eurozone economic activity data continues to perform well, with the preliminary March composite PMI rising to a fresh six-year high (+1.7 pts to 56.7), beating expectations of a slight decline. On a historical basis, PMIs over Q1 are consistent with a firming of GDP growth during the quarter, following 0.4 per cent qoq in Q4 2016. Improved activity data goes some way in explaining the more bullish outlook presented at the ECB’s March meeting, which pointed to “less pronounced” risks to the growth outlook, even if they “remain tilted to the downside”. ECB President Draghi also stated that “risks of deflation have largely disappeared”. Overall, with strong activity data and diminished risks of deflation, the arguments for a further taper of the Asset Purchase Programme (APP) in 2018 are strong, especially given concerns of technical buying limits and market distortions. Nevertheless, Draghi continues to emphasise there are “no signs yet of a convincing upward trend in underlying inflation”. Consequently, ultra-low rates are likely to persist.

Chinese authorities highlight “stability” as key objective for 2017; Japanese data improves, but inflation remains weak

In China this month , the National People’s Congress (NPC) highlighted “stability” as the key objective for 2017, as the government strikes a balance between economic growth and structural reforms/financial stability. Proactive fiscal policy was reiterated, as well as a prudential and neutral monetary policy. However, a subtle monetary tightening bias of late is reflected in higher (and potentially more volatile) interbank rates, stricter credit extension to the property market, and tighter regulations on financing by shadow banks given a policy focus on financial de-leveraging and containing risks. Japanese economic data has recently improved, with personal consumption and external trade gathering pace over the first months of 2017. However, inflation remains weak despite the surge in energy prices over the past 12 months. Nevertheless, at its March policy meeting, the Bank of Japan reiterated its confidence that inflation will gradually converge towards its 2 per cent target.

Emerging market assets have benefited from easing concerns over a hard-Trump trade agenda and upbeat global data

For emerging markets (EM), there has been an impressive rebound in equities year-to-date, suggesting that investors have become less concerned over a “hard-Trump” policy agenda. Investors are also responding to generally better news on the global economic cycle. Although aggregate EM equity valuations no longer look anomalously cheap, risk premia are still attractive in selective markets such as Korea, Russia, Poland and Turkey. Many EMs also benefit from undervalued currencies poised for medium-term appreciation. EM local-currency debt has not rallied as strongly as equities year-to-date, and prospective returns continue to look attractive against competing asset classes.

In terms of economic developments, Brazilian data releases improved in March, with retail sales, industrial production, PMIs and consumer confidence all rising. Positive GDP growth is expected to return in Q2-2017, whilst a slowdown in inflationary pressures could see the Central Bank of Brazil cut policy rates further in Q2. Less positively, Mexico’s data releases in March showed anaemic activity, with inflationary pressures likely to maintain a hawkish bias by the Bank of Mexico. In India, the ruling BJP’s strong performance in state assembly elections should facilitate the implementation of economic reforms, with the goods and services tax (GST) on course for a 1 July rollout. Recent data also indicates a less adverse than expected economic impact of demonetisation.

Risk asset rally implies a more targeted and cautious use of risk budgets

The macro environment remains supportive for equities, but recent price action has significantly reduced the prospective reward for bearing equity risk in an environment of high uncertainty. Equity risk premia are especially low in the US, UK and Canada. Overall we remain neutral, with a relative preference for Japan and Europe which offer higher implied risk premia. For credits, recent spread compression makes us more cautious on global high-yield credit, despite an improvement in underlying fundamentals. Amid a thinner margin-of-safety, we adopt a negative bias on our neutral stance. We remain underweight in DM government bonds, given that prospective returns still look low relative to competing asset classes. The prevailing macro environment also remains bond-unfriendly (e.g. stronger global activity, the prospect of fiscal easing). However, we still think there is a strong diversification case for owning Treasuries in a multi-asset portfolio as insurance against a deteriorating global growth picture.

Global Strategic Asset Allocations

open

Global Strategic Asset Allocations (as at 28 February 2017)

Global equities had another positive month in February, boosted by robust global macro data, continuing expectations of a US fiscal package, and generally upbeat corporate earnings. Further compression of implied equity premia warrants a neutral positioning for global equities, in our view. The premium looks especially poor in the US, Canada, and the UK, although 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. But the prevailing macro environment remains supportive, whilst the default outlook appears benign. We remain neutral for investment grade credits. However, we are neutral with a negative bias for riskier high-yield credit.

Finally, 10-year US Treasuries rose in February, supported by a lack of clarity around US tax reform, whilst European core bonds outperformed amid regional political risks, with 2-year German bund yields hitting fresh record lows. Overall, prospective DM government bond returns still look low and we believe we are not being rewarded for taking duration risk. In the current bond-unfriendly environment (stronger global activity, the prospect of fiscal easing, and rising headline inflation) we continue to be structurally underweight in DM government bonds.

Within the allocations of our global multi-asset model portfolios, we remain underweight DM government bonds, but this 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 (February 2017) Portfolio Tilt Change
Global Equities 23.4% 21.0% 2.4% 1.4%
Global Government Bonds 14.3% 17.0% -2.8% 1.8%
DM Government Bonds 6.5% 12.0% -5.5% 0.5%
EM Government Bonds 7.8% 5.0% 2.8% 1.3%
Global Corporate Bonds 56.3% 56.0% 0.3% -1.8%
Global Investment Grade 42.0% 41.0% 1.0% -0.5%
Global High Yield 9.3% 10.0% -0.8% -2.3%
EM Debt (Hard Currency) 5.0% 5.0% 0.0% 1.0%
Global Real Estate 4.0% 5.0% -1.0% -1.0%
Cash 2.1% 1.0% 1.1% -0.4%
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 (February 2017) Portfolio Tilt Change
Global Equities 49.3% 47.0% 2.3% 1.2%
Global Government Bonds 10.3% 10.0% 0.3% 0.8%
DM Government Bonds 3.0% 5.0% -2.0% 0.0%
EM Government Bonds 7.3% 5.0% 2.3% 0.8%
Global Corporate Bonds 33.3% 37.0% -3.8% -2.8%
Global Investment Grade 19.0% 22.0% -3.0% -1.5%
Global High Yield 9.3% 10.0% -0.8% -2.3%
EM Debt (Hard Currency) 5.0% 5.0% 0.0% 1.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 2.3% 1.0% 1.3% 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 (February 2017) Portfolio Tilt Change
Global Equities 74.0% 70.5% 3.5% 2.5%
Global Government Bonds 7.5% 5.0% 2.5% 1.0%
DM Government Bonds 0.0% 0.0% 0.0% 0.0%
EM Government Bonds 7.5% 5.0% 2.5% 1.0%
Global Corporate Bonds 12.8% 18.5% -5.8% -3.3%
Global Investment Grade 0.5% 3.5% -3.0% -0.5%
Global High Yield 8.3% 10.0% -1.8% -2.8%
EM Debt (Hard Currency) 4.0% 5.0% -1.0% 0.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 0.8% 1.0% -0.3% -0.3%
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 March 2017. The ‘SAA Portfolio’ is the result of HSBC Global Asset Management’s portfolio optimisation process. These model portfolios are expressed in USD. Please Note: These do not include new SAAs that became effective as of 1 March 2017. However, trading according to these new SAAs commenced prior to this date and is reflected in “Current Model Portfolio” positions.

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

open
  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) 449 1.0 6.4 12.7 6.4 453 379 16.6
North America
US Dow Jones Industrial Average 20,663 -0.7 4.6 16.8 4.6 21,169 17,063 17.2
US S&P 500 Index 2,363 0.0 5.5 14.7 5.5 2,401 1,992 18.3
US NASDAQ Composite Index 5,912 1.5 9.8 21.4 9.8 5,928 4,574 22.6
Canada S&P/TSX Composite Index 15,548 1.0 1.7 15.2 1.7 15,943 13,217 16.9
Europe
MSCI AC Europe (USD) 426 3.6 6.5 6.5 6.5 429 354 15.0
Euro STOXX 50 Index 3,501 5.5 6.4 16.5 6.4 3,508 2,678 15.0
UK FTSE 100 Index 7,323 0.8 2.5 18.6 2.5 7,447 5,789 14.8
Germany DAX Index* 12,313 4.0 7.2 23.6 7.2 12,376 9,214 14.1
France CAC-40 Index 5,123 5.4 5.4 16.8 5.4 5,133 3,956 15.1
Spain IBEX 35 Index 10,463 9.5 11.9 19.9 11.9 10,463 7,580 14.8
Asia Pacific
MSCI AC Asia Pacific ex Japan (USD) 479 2.8 12.3 14.9 12.3 484 394 13.8
Japan Nikkei-225 Stock Average 18,909 -1.1 -1.1 12.8 -1.1 19,668 14,864 18.0
Australian Stock Exchange 200 5,865 2.7 3.5 15.4 3.5 5,902 4,894 16.3
Hong Kong Hang Seng Index 24,112 1.6 9.6 16.1 9.6 24,657 19,595 12.1
Shanghai Stock Exchange Composite Index 3,223 -0.6 3.8 7.3 3.8 3,301 2,781 13.7
Hang Seng China Enterprises Index 10,274 -0.2 9.4 14.1 9.4 10,698 8,176 8.3
Taiwan TAIEX Index 9,812 0.6 6.0 12.2 6.0 9,977 8,000 13.7
Korea KOSPI Index 2,160 3.3 6.6 8.2 6.6 2,182 1,893 9.9
India SENSEX 30 Index 29,621 3.1 11.2 16.9 11.2 29,859 24,523 17.4
Indonesia Jakarta Stock Price Index 5,568 3.4 5.1 14.9 5.1 5,617 4,691 16.1
Malaysia Kuala Lumpur Composite Index 1,740 2.7 6.0 1.3 6.0 1,760 1,612 16.5
Philippines Stock Exchange PSE Index 7,312 1.4 6.9 0.7 6.9 8,118 6,499 17.8
Singapore FTSE Straits Times Index 3,175 2.5 10.2 11.8 10.2 3,188 2,703 14.8
Thailand SET Index 1,575 1.0 2.1 11.9 2.1 1,601 1,343 15.5
Latam
Argentina Merval Index 20,265 6.0 19.8 56.0 19.8 20,323 11,776 8.4
Brazil Bovespa Index* 64,984 -2.5 7.9 29.8 7.9 69,488 47,874 12.1
Chile IPSA Index 4,783 9.7 15.2 21.5 15.2 4,877 3,847 17.8
Colombia COLCAP Index 1,366 3.0 1.0 2.2 1.0 1,419 1,271 12.4
Mexico Index 48,542 3.6 6.4 5.8 6.4 49,524 43,902 18.3
EEMEA
Russia MICEX Index 1,996 -2.0 -10.6 6.7 -10.6 2,294 1,834 6.1
South Africa JSE Index 52,056 1.8 2.8 -0.4 2.8 54,704 48,936 15.3
Turkey ISE 100 Index* 88,947 1.7 13.8 6.8 13.8 91,497 70,426 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 6.9 6.9 15.0 16.0 49.5
US equities 6.1 6.1 16.7 31.3 80.1
Europe equities 7.2 7.2 9.8 -5.0 28.4
Asia Pacific ex Japan equities 12.8 12.8 18.2 11.1 26.2
Japan equities 4.5 4.5 14.4 19.2 39.1
Latam equities 12.1 12.1 23.3 -11.5 -27.0
Emerging Markets equities 11.4 11.4 17.2 3.6 4.1

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) 502 0.0 0.4 1.1 0.4
JPM EMBI Global 768 0.3 3.9 8.8 3.9
BarCap US Corporate Index (USD) 2,760 -0.2 1.2 3.3 1.2
BarCap Euro Corporate Index (Eur) 242 -0.4 0.3 2.5 0.3
BarCap Global High Yield (USD) 445 0.0 3.0 15.1 3.0
Markit iBoxx Asia ex-Japan  Bond Index (USD) 190 0.3 2.3 4.1 2.3
Markit iBoxx Asia ex-Japan High-Yield Bond Index (USD) 244 0.4 3.7 12.5 3.7

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 0.75 0.60 0.50 0.20 0.50
2-Year 1.25 1.26 1.19 0.72 1.19
5-Year 1.92 1.93 1.93 1.20 1.93
10-Year 2.39 2.39 2.44 1.77 2.44
30-Year 3.01 3.00 3.07 2.61 3.07
Developed market 10-year bond yields (%)
Japan 0.07 0.05 0.04 -0.04 0.04
UK 1.14 1.15 1.24 1.41 1.24
Germany 0.33 0.21 0.20 0.15 0.20
France 0.97 0.89 0.68 0.49 0.68
Italy 2.31 2.08 1.81 1.22 1.81
Spain 1.65 1.64 1.38 1.43 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 1.07 1.06 1.05 1.14 1.05 1.16 1.03
GBP/USD 1.26 1.24 1.23 1.44 1.23 1.50 1.18
CHF/USD 1.00 0.99 0.98 1.04 0.98 1.06 0.97
CAD 1.33 1.33 1.34 1.30 1.34 1.36 1.25
JPY 111.4 112.8 117.0 112.6 117.0 118.7 99.0
AUD 1.31 1.31 1.39 1.31 1.39 1.40 1.28
NZD 1.43 1.39 1.44 1.45 1.44 1.50 1.34
Asia
HKD 7.77 7.76 7.76 7.76 7.76 7.77 7.75
CNY 6.89 6.87 6.95 6.45 6.95 6.96 6.46
INR 64.85 66.69 67.92 66.25 67.92 68.86 64.76
MYR 4.43 4.44 4.49 3.90 4.49 4.50 3.84
KRW 1,118 1,130 1,206 1,143 1,206 1,212 1,090
TWD 30.35 30.68 32.33 32.21 32.33 32.82 30.15
Latam
BRL 3.12 3.11 3.26 3.59 3.26 3.72 3.04
COP 2,874 2,926 3,002 3,002 3,002 3,208 2,817
MXN 18.72 20.11 20.73 17.28 20.73 22.04 17.05
EEMEA
RUB 56.24 58.38 61.54 66.90 61.54 69.49 55.86
ZAR 13.41 13.13 13.74 14.77 13.74 15.98 12.31
TRY 3.64 3.65 3.52 2.82 3.52 3.94 2.79

Commodities Latest MTD
Change
(%)
3-month
Change
(%)
1-year
Change
(%)
YTD
Change
(% )
52-week
High
52-week
Low
Gold 1,249 0.1 8.4 1.3 8.4 1,375 1,121
Brent Oil 52.8 -5.0 -7.0 33.4 -7.0 58 37
WTI Crude Oil 50.6 -6.3 -5.8 32.0 -5.8 55 35
R/J CRB Futures Index 186 -2.5 -3.4 9.0 -3.4 196 165
LME Copper 5,838 -2.3 5.5 20.4 5.5 6,204 4,484


Sources: Bloomberg, HSBC Global Asset Management. Data as at close of business 31 March 2017.
Past performance is not an indication of future returns.

Disclaimer

open

For Professional Clients and intermediaries within countries set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.

The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management Global Investment Strategy Unit at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity.

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.

We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.

HSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities: in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Conduct Authority; in France by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026); in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin; in Switzerland by HSBC Global Asset Management (Switzerland) Ltd whose activities are regulated in Switzerland and which activities are, where applicable, duly authorised by the Swiss Financial Market Supervisory Authority. Intended exclusively towards qualified investors in the meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA); in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission; in Canada by HSBC Global Asset Management (Canada) Limited which is registered in all provinces of Canada except Prince Edward Island; in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 6 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority; in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India; in the United Arab Emirates, Qatar, Bahrain, Kuwait & Lebanon by HSBC Bank Middle East Limited which are regulated by relevant local Central Banks for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority; in Oman by HSBC Bank Oman S.A.O.G regulated by Central Bank of Oman and Capital Market Authority of Oman; in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan); in the US by HSBC Global Asset Management (USA) Inc. is an investment advisor registered with the US Securities and Exchange Commission;

INVESTMENT PRODUCTS:

  • Are not a deposit or other obligation of the bank or any of its affiliates;
  • Not FDIC insured or insured by any federal government agency of the United States;
  • Not guaranteed by the bank or any of its affiliates; and
  • Are subject to investment risk, including possible loss of principal invested.

 

and in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore. HSBC Global Asset Management (Singapore) Limited, or its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. HSBC Global Asset Management (Singapore) Limited is a Capital Market Services License Holder for Fund Management. HSBC Global Asset Management (Singapore) Limited is also an Exempt Financial Adviser and has been granted specific exemption under Regulation 36 of the Financial Advisers Regulation from complying with Sections 25 to 29, 32, 34 and 36 of the Financial Advisers Act, Chapter 110 of Singapore.

Copyright © HSBC Global Asset Management Limited 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Global Asset Management Limited.

Under FP17-0558 until 03/06/2017.