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

  • We continue to favour risk assets such as global equities, emerging market (EM) and corporate bonds relative to developed market (DM) government bonds
  • Global equities rose in December, with upbeat macro data boosting risk appetite. Meanwhile, oil prices surged as OPEC finalised a deal to cut output
  • As expected, the Federal Open Market Committee (FOMC) lifted the federal funds target rate by 25bps, reaffirming the “uber-gradual” hiking cycle ahead
  • Eurozone data releases suggest Q4 GDP growth should accelerate. Meanwhile, the ECB extended its bond-buying programme by nine months to December 2017
  • In China, the annual Central Economic Work Conference highlighted that “stability” is key for 2017 economic planning, with the control of financial risks also prioritised

Fed acknowledges recent US activity data firming


As anticipated, the December FOMC meeting saw the first rate hike in a year. More interestingly, the Fed raised their forecast for the number of 2017 rate hikes, from two to three. This was likely driven by improving macro momentum, and reflects in part the prospect of fiscal stimulus under Trump. Other major economies, not least the Eurozone, have seen a pick-up in activity of late. Overall, amid rising inflationary pressures, the global economic backdrop is becoming less bond friendly.

Therefore, we retain our strategic underweight in core developed market government bonds, and continue to prefer an overweight exposure to a diversified basket of risk assets, including equities (in particular Europe, Japan and selective parts of EM with resilient fundamentals) and local currency EM debt, within the context of a well-diversified multi-asset portfolio, from a strategic and long-term perspective.

Long term asset class positioning (>12 months)

Asset class View Movement Rationale
Global Overweight Rationale of overweight views: We continue to expect a better long-term reward for holding global equities rather than developed market cash or government bonds. The global economic recovery appears to be gathering pace, driving global equity markets to deliver positive returns over the long term. Overall, support from incredibly 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: Episodic volatility may be triggered by concerns surrounding Chinese growth, uncertainty around US economic policy under a Trump administration (with the possible introduction of protectionist trade measures), a potentially more rapid than expected Fed tightening cycle, coupled with rising political risks (especially in Europe). A notable and persistent decline in 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 a Trump administration remains extremely uncertain. If a “Hard Trump” outcome arises, with potentially longer-term adverse impacts on the US economy, we would require a higher reward for bearing US equity risk. Meanwhile, a stronger US dollar (amid rising wage inflation) could extend the recent deteriorating trend in corporate profits. An elevated corporate profit share also suggests little capacity for upside in earnings growth. Finally, rising inflation without an associated pickup in economic growth would imply a less constructive Fed hiking cycle than one driven by both inflation and growth.
Positive factors to consider: Corporate tax reform, looser regulation and fiscal stimulus under a Trump administration present an upside risk to earnings. A durable US economic recovery and a growth-focused central bank remain supportive for US equities.
UK Neutral Positive factors: The UK economy has been far more resilient following June’s Brexit vote than originally anticipated. Meanwhile, the sharp fall in GBP following the UK vote for ‘Brexit’ may support UK equities going forward given their relatively high dependence on foreign earnings.
Risks to consider: UK economic growth could weaken amid Brexit related uncertainty, although we expect this may be somewhat offset by looser monetary and fiscal policy.
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 recovery cycle. Furthermore, the monetary backdrop remains supportive, with the ECB’s Asset Purchase programme (APP) extended to December 2017.
Risks to consider: The UK ‘Brexit’ vote raises concerns over the European Union’s future, which may dent regional confidence, hitting growth prospects. Slower UK GDP growth may also hit Eurozone exports to a significant trading partner. Meanwhile, if inflation rises faster than expected, or the ECB raises concerns over the APP’s distortive effects, monetary easing may be less accommodative than expected. The region also remains vulnerable to external headwinds, particularly anaemic global trade growth and softness in key emerging market trading partners. Finally, further political uncertainty lies ahead in the form of the Dutch, French, German and (likely) Italian elections in 2017.
Japan Overweight Rationale of overweight views: Japanese earnings per share may rise, supported by the Bank of Japan’s (BoJ) extremely loose monetary policy and the government’s recent fiscal stimulus package. Given the limited scope for further JGB buying and a comparatively small corporate credit market, a proactive BoJ may increase its equity holdings to ease policy. The bank’s introduction of “Yield Curve Control” in September may alleviate some of the impact of negative interest rates on financial sector profits, guarantees the equity risk premium and could provide a strong incentive for the Ministry of Finance to ease fiscal policy further. This framework could also allow further cuts into negative territory, helping to maintain yield differentials vis-à-vis other major economies, which may weigh on the yen, boosting the value of overseas earnings. Relative valuations and risk premia are attractive, in our view, whilst large cash reserves mean Japanese corporates also have plenty of scope to boost dividends or engage in stock repurchases.
Risks to consider: Earnings momentum has slowed recently amid external headwinds and sluggish domestic fundamentals. Despite the Bank of Japan’s adoption of Negative Interest Rate Policy (NIRP) in late January 2016, the outlook for the yen remains uncertain – a key risk for export-sensitive Japanese stocks. Finally, BoJ equity purchases raise concerns related to the bank becoming a major shareholder in the Japanese stock market.
Emerging Markets
Overweight Rationale of overweight views: 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, especially as sovereign bond returns remain high. We would also focus on countries with strong underlying macro fundamentals, and which could be shielded from protectionist trade policies. Asia is our preferred region, as the prospective returns look higher, sustained by a continued supportive economic environment.
Risks to consider: There could be some near-term volatility as worries persist around the uncertain path for future Fed tightening, the potential for increased trade protectionism, the rate of economic transition in China, and the robustness of the global economy as a whole.
Asia ex Japan Overweight Rationale of overweight views:A combination of higher nominal growth/modest reflation, lower real interest rates, and a recovery in margins should support an improvement in Asia ex Japan corporate earnings and profitability. Valuations look reasonable and risk is attractively priced, based on our long-term expected return signals. Structural reforms provide a re-rating potential in some markets.
Risks to consider: The election of Donald Trump as US president introduces the risk of increased trade protectionism. Another key risk is a more aggressive Fed hiking cycle, which would put pressure on currencies in the region and compound capital outflows, resulting in tighter central bank policy. Other risks include fragile global growth; renewed concerns about China's economy; commodity price volatility; and regional/domestic political events. High leverage, bank asset-quality concerns, and diminishing efficacy of monetary policy in some economies also present headwinds.
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 trade protectionism.
Risks to consider:Shorter term, these markets are vulnerable to concerns about reduced global liquidity, whilst lower commodity prices may remain a severe impediment for commodity-dependent producers. Geopolitical tensions are also high and unpredictable, whilst domestic political and macroeconomic fundamentals remain poor in many countries, such as Brazil. Meanwhile, Mexico is particularly vulnerable to a “Hard-Trump” trade policy.
Government bonds
Global Underweight Rationale of underweight views:In our view, at the aggregate level, global government bond yields (the majority of which are core developed market) are still too low. Flattish yield curves and ultra-low yields imply that sustainable returns are very poor and term premia are close to zero. If fiscal stimulus is back in fashion, it is possible that we see a continuation of the recent aggressive reversal in yields, although we would approach such a market reaction with caution.
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 last several years. Finally, Treasury Inflation Protected Securities (TIPS) still look attractive relative to nominal DM bonds, but the case has diminished following rising breakeven inflation rates.
US Underweight Rationale of underweight views: The US labour market is at (or close to) full employment and underlying inflation is rising. Meanwhile, the prospect of US fiscal stimulus should also boost inflationary pressures and increase treasury issuance. With yields still low (and real yields even lower), we prefer to be underweight and instead maintain a preference for risk assets.
Positive factors to consider: If US growth disappoints or the recent rise in inflation stalls, monetary policy may become more accommodative and prove supportive for this asset class in the short- to medium-term, although market expectations are already set for a very benign environment. Government bonds continue to offer a diversification element, important in a volatile environment.
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. Growth may also be more resilient than expected.
Positive factors to consider: Amid growth risks, 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 that the ECB tapers its QE programme further after December 2017.
Positive factors to consider: The extension of the ECB’s Asset Purchase Programme (APP) until December 2017 may provide further near-term support to this asset class. Meanwhile, core inflationary pressures and long-term inflation expectations in the region remain subdued, which should keep ultra-accommodative monetary policy in place for an extended period of time.
Japan Underweight Rationale of underweight views: In our view, Japanese government bonds are overvalued, with yields up to ten-year maturities close to negative territory. The current QE programme is supportive, but the commitment to keep 10-year yields at their current level could be reviewed, and given the high level of JGB purchases already made, the BoJ may have to explore other asset class purchases to ease policy.
Positive factors to consider: The Bank of Japan’s new policy framework of “Yield Curve Control” will 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 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. Bonds from EM economies with significant external financing needs are particularly at risk, whilst those dependent on trade are at risk from rising protectionism.
Corporate bonds
Global investment grade (IG) Neutral Positive factors: Corporate balance sheets remain in good shape and default rates are low. Furthermore, although spreads have narrowed significantly this year, they continue to look attractive on a relative basis versus what is available to multi-asset investors in other asset classes.
Risks to consider: We retain a neutral positioning for this asset class, 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 credits. The US may outperform given conservative selection.
Risks to consider: Improved 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: Euro and sterling-denominated investment-grade corporate bonds should find continued support from the ECB and BoE’s corporate bond-buying programmes. 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: The potential for a worsening economic environment should global growth surprise to the downside. Stripping out currency effects, GBP-denominated credit for UK-focused names could deteriorate if the UK economy slows.
Positive factors: Defaults remain comparatively low and are likely to be contained to commodity-related sectors. We think selective parts of the credit universe remain relatively attractive, such as US short-duration high-yield.
Risks to consider: Default rates are expected to peak in early 2017, and could spread beyond the commodity sector. This highlights the importance of being selective, with a focus on quality names. As with IG, high-yield credit could be volatile amid tighter US monetary policy.
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.
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 fail to be successfully implemented. Industrial metals remain exposed to the pace of China’s economic rebalancing and global growth.
Real estate Neutral Positive factors: Partly due to fears of rising interest rates, real estate equity prices have fallen in recent months. As a result, real estate equity dividend yields have increased and stand at a premium of around 130 basis points above general equities. Our outlook for future rents has remained broadly unchanged, however, and we continue to believe that global real estate equities offer reasonably attractive long-run prospective returns relative to core developed-market government bonds.
Risks to consider: The prospect of 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.

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


Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout October 2016, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 30 September 2016, our portfolio optimisation process and actual portfolio positions.

 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.

Global economy continues to strengthen


Firming global activity helps push global equities higher; oil prices surge on OPEC deal; Treasuries dip on Fed hawkishness

Global equities rose in December, with upbeat macro data boosting risk appetite among investors at the global level. The MSCI AC World index finished 2.4 per cent higher over the month (in local currency terms). In the US, the S&P 500 gained 1.8 per cent to hit fresh record highs, whilst in Japan the Nikkei rose by 4.4 per cent, boosted by a sharp decline in the yen against a broadly stronger US dollar. Meanwhile, European stocks outperformed (the Euro Stoxx 50 rallied by 7.8 per cent) amid strong gains in financial shares. Emerging market equities significantly underperformed however (the MSCI EM index fell 0.2 per cent), with Chinese benchmarks pressured by regulatory curbs to rein in insurers' stock purchases. Elsewhere, oil prices surged as OPEC finalised a deal to cut output, along with co-operation from 11 non-OPEC countries. Finally, US 10-year Treasuries declined (yields rose) during the month, driven by the Fed’s hawkish tilt at its December meeting, whilst European equivalents gained as the ECB maintained its highly accommodative stance (all data above as of close of 31 December in local currency, price return, month-to-date terms).

Our Nowcast indicates continued US activity acceleration as the Fed hikes the fed funds rate by 25bps

As expected, December’s FOMC meeting saw a unanimous decision to raise the federal funds target rate to 0.75-0.50 per cent from 0.50-0.25 per cent. While FOMC participants raised their expectation for the number of rate hikes in 2017, from two to three, Fed Chair Janet Yellen’s post-meeting press conference saw a reaffirming of the “uber-gradual” hiking cycle ahead. The meeting statement was more upbeat on activity and inflation than in early November, reflecting a host of consensus-beating data releases over the past month. The ISM non-manufacturing index for November reached its highest level in over a year (57.2), whilst the December Conference Board Consumer Confidence release hit a 15-year high. Less positively, November’s retail sales data saw the control measure (excluding food, autos, gas and building materials) rise by only 0.1 per cent mom, however underlying momentum remains firm. Encouragingly, our US Nowcast measure of underlying activity edged up in November to its highest rate of expansion since December 2014.

European activity also accelerates at the end of the year as the ECB extends its Asset Purchase Programme

In the Eurozone, further evidence of robust growth momentum came in the form of the December PMIs which saw a large gain in the manufacturing component (to its highest level since April 2011) offset a slight deterioration in the services component, leaving the composite index unchanged (53.9). Elsewhere, unemployment fell by more than expected to 9.8 per cent in October, its lowest level since July 2009. Overall, there seems to be enough evidence to suggest that Eurozone GDP growth should accelerate in Q4, although concerns remain about mounting domestic political risks in 2017. Meanwhile, at its December meeting, the ECB extended the Asset Purchase Programme by nine months (to December 2017) at a reduced pace of EUR60 billion a month (from EUR80 billion currently), with Draghi emphasising at the press conference that the announcement does not represent a taper of the programme.

Japan’s Q3 GDP growth revised down as Bank of Japan (BoJ) stands pat; tight labour market supports 2017 growth prospects

Softer than expected Japanese private non-residential investment saw Q3 GDP surprisingly revised down to 1.3 per cent qoq annualised from 2.2 per cent in the prior release. The December BoJ meeting saw policy remain on hold, including the maintenance of the “yield curve control” framework. Policymakers still expect labour market tightening will support wages and private demand, narrow the output gap and lift inflation towards the 2 percent target. The potential for further near-term yen weakness may also help boost inflation, as well as exports.

China’s growth holds firm as government officials signal an acceleration of supply-side reforms in 2017

China’s economic activity continues along a steady growth path, buoyed by resilient domestic demand and a recovery in exports, although property activity has slowed following policy tightening. The recent improvement in industrial pricing power has been reflected in higher profits, particularly in industries with overcapacity. The annual Central Economic Work Conference highlighted that “stability” is key for 2017 economic planning, with containing financial risks a higher priority than growth targets. The conference also suggested that the government will maintain "proactive fiscal policy and prudent monetary policy” and accelerate supply-side reforms.

Emerging market assets stabilise following Trump-induced weakness; more resilient economies may outperform

Emerging market assets sold off following Trump’s election victory, although they have stabilised more recently. Looking ahead, more resilient economies may outperform, including those that are relatively shielded from a shift towards protectionism (e.g. Brazil, India, Indonesia), have a low foreign ownership of local currency government bonds (South Korea, Thailand, India), and low levels of dollar-denominated debt (China, Poland, Indonesia). Meanwhile, Brazilian activity seems to have bottomed out, and given anchored inflation expectations, the central bank may accelerate the pace of interest rate cuts in 2017, supporting growth prospects. And although India’s recent economic data deteriorated amid the government’s demonetisation programme, the Reserve Bank of India anticipates a largely transitory economic impact, reflected in their unexpected December decision to keep rates on hold. However, Mexico remains vulnerable under a Trump policy agenda. The sharp post US-election peso depreciation drove the Bank of Mexico to raise its policy rate by another 50bps in December despite evidence of cooling growth. Turkey is also facing headwinds from domestic political developments and high levels of dollar-denominated debt, with GDP contracting by 1.8 per cent yoy in Q3, weighed by weak household consumption.

Our preference for risk assets remains intact in a less bond friendly environment

With proactive fiscal and monetary policy supporting the recent acceleration of global economic activity, amid rising inflationary pressures (especially in the US), structurally we expect global developed market bond yields to move higher still. In addition, prospective returns still look low relative to competing asset classes, so we maintain an underweight position. We continue to prefer an overweight exposure to a diversified basket of risk assets, including equities (in particular Europe, Japan and selective parts of EM with resilient fundamentals) and local currency EM debt, within the context of a well-diversified multi-asset portfolio, from a strategic and long-term perspective.

Global Strategic Asset Allocations


Global Strategic Asset Allocations (as at 30 November 2016)

Global equities rose in November, supported by expectations of greater US fiscal stimulus following Donald Trump’s US election victory, whilst upbeat global economic data also supported sentiment. The equity risk premium versus bonds has narrowed, but harvesting this premium makes sense assuming no imminent recession. We prefer to focus on Rest-of-World equities, particularly Japan and Europe where cyclical activity is encouraging and policy remains supportive.

Meanwhile in the credit space, both investment grade and high-yield expected returns have improved over the month; this has been more meaningful in US investment grade, which remains attractive relative to European credits. Overall, however, we continue to advocate a neutral stance in these asset classes as valuations remain in “fair value” territory. Generally speaking, we prefer exposure to short duration credits to take advantage of the credit risk factor whilst minimising duration risk.

Meanwhile, most Developed Market (DM) government bond markets fell sharply (yields rose) again in November, as Trump’s Election victory further boosted inflation expectations as well as prospects of a Fed rate hike in December. In particular, US Treasuries saw a large sell-off, pushing our measure of the term premium close to zero for 10 year notes. However, a positive reward is required in today’s bond unfriendly environment, and relative to competing asset classes the prospective returns on core DM bonds are still poor, so we maintain a strategic underweight.

Within the allocations of our global multi-asset model portfolios, we continue to 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 (November 2016) Portfolio Tilt Change
Global Equities 22.0% 21.0% 1.0% 0.0%
Global Government Bonds 12.5% 17.0% -4.5% 0.5%
   DM Government Bonds 6.0% 12.0% -6.0% 0.0%
   EM Government Bonds 6.5% 5.0% 1.5% 0.5%
Global Corporate Bonds 58.0% 56.0% 2.0% -0.5%
    Global Investment Grade 42.5% 41.0% 1.5% 0.0%
   Global High Yield 11.5% 10.0% 1.5% -0.5%
EM Debt (Hard Currency) 4.0% 5.0% -1.0% 0.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 2.5% 1.0% 1.5% 0.0%
Total 100.0% 100% 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 (November 2016) Portfolio Tilt Change

Global Equities

48.0% 47.0% 1.0% 0.0%
Global Government Bonds 9.5% 10.0% -0.5% 0.5%
DM Government Bonds 3.0% 5.0% -2.0% 0.0%
EM Government Bonds 6.5% 5.0% 1.5% 0.5%
Global Corporate Bonds 36.0% 37.0% -1.0% -0.5%
Global Investment Grade 20.5% 22.0% -1.5% 0.0%
Global High Yield 11.5% 10.0% 1.5% -0.5%
EM Debt (Hard Currency) 4.0% 5.0% -1.0% 0.0%
Global Real Estate 5.0% 5.0% 0.0% 0.0%
Cash 1.5% 1.0% 0.5% 0.0%
Total 100.0% 100.0% 0.0% 0.0%
Target Volatility 8-11%

Source: HSBC Global Asset Management.
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 (November 2016) Portfolio Tilt Change
Global Equities 71.5% 70.5% 1.0% 0.0%
Global Government Bonds 6.5% 5.0% 1.5% 0.5%
DM Government Bonds 0.0% 0.0% 0.0% 0.0%
EM Government Bonds 6.5% 5.0% 1.5% 0.5%
Global Corporate Bonds 16.0% 18.5% -2.5% -0.5%
Global Investment Grade 1.0% 3.5% -2.5% 0.0%
Global High Yield 11.0% 10.0% 1.0% -0.5%
EM Debt (Hard Currency) 4.0% 5.0% -1.0% 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 December 2016. 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.

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

  Close MTD
Equity Indices
MSCI AC World Index (USD) 422 2.0 0.8 5.6 5.6 428 351 17.5
North America
US Dow Jones Industrial Average 19,763 3.3 7.9 13.4 13.4 19,988 15,451 18.1
US S&P 500 Index 2,239 1.8 3.3 9.5 9.5 2,278 1,810 18.8
US NASDAQ Composite Index 5,383 1.1 1.3 7.5 7.5 5,512 4,210 22.4
Canada S&P/TSX Composite Index 15,288 1.4 3.8 17.5 17.5 15,433 11,531 20.2
MSCI AC Europe (USD) 400 5.3 -0.4 -2.7 -2.7 415 354 14.5
Euro STOXX 50 Index 3.291 7.8 9.6 0.7 0.7 3,323 2,673 15.4
UK FTSE 100 Index 7,143 5.3 3.5 14.4 14.4 7,205 5,500 16.9
Germany DAX Index* 11,481 7.9 9.2 6.9 6.9 11,637 8,699 14.2
France CAC-40 Index 4,862 6.2 9.3 4.9 4.9 4,912 3,892 15.4
Spain IBEX 35 Index 9,352 7.6 6.5 -2.0 -2.0 9,616 7,580 16.4
Asia Pacific
MSCI AC Asia Pacific ex Japan (USD) 427 -1.3 -5.4 3.7 3.7 459 357 14.4
Japan Nikkei-225 Stock Average 19,114 4.4 16.2 0.4 0.4 19,593 14,864 19.3
Australian Stock Exchange 200 5,666 4.1 4.2 7.0 7.0 5,737 4,707 16.4
Hong Kong Hang Seng Index 22,001 -3.5 -5.6 0.4 0.4 24,364 18,279 11.2
Shanghai Stock Exchange Composite Index 3,104 -4.5 3.3 -12.3 -12.3 3,581 2,638 13.2
Hang Seng China Enterprises Index 9,395 -4.5 -2.0 -2.8 -2.8 10,210 7,499 7.8
Taiwan TAIEX Index 9,254 0.1 0.9 11.0 11.0 9,430 7,628 13.4
Korea KOSPI Index 2,026 2.2 -0.8 3.3 3.3 2,074 1,818 10.2
India SENSEX 30 Index 26,626 -0.1 -4.4 1.9 1.9 29,077 22,495 18.3
Indonesia Jakarta Stock Price Index 5,297 2.9 -1.3 15.3 15.3 5,492 4,409 14.5
Malaysia Kuala Lumpur Composite Index 1,642 1.4 -0.7 -3.0 -3.0 1,729 1,601 15.4
Philippines Stock Exchange PSE Index 6,841 0.9 -10.3 -1.6 -1.6 8,118 6,084 16.4
Singapore FTSE Straits Times Index 2,881 -0.8 0.4 -0.1 -0.1 2,981 2,528 13.4
Thailand SET Index 1,543 2.2 4.0 19.8 19.8 1,558 1,221 16.0
Argentina Merval Index 16,918 -3.0 1.5 44.9 44.9 18,432 9,200 14.7
Brazil Bovespa Index* 60,227 11.2 13.3 38.9 38.9 65,291 37,046 12.1
Chile IPSA Index 4,151 -1.3 3.4 12.8 12.8 4,484 3,419 15.2
Colombia COLCAP Index 1,352 5.1 1.0 17.2 17.2 1,419 1,068 11.5
Mexico Index 45,643 0.7 -3.4 6.2 6.2 48,956 39,924 16.7
Russia MICEX Index 2,233 6.1 12.9 26.8 26.8 2,258 1,583 7.5
South Africa JSE Index 50,654 0.9 -2.5 -0.1 -0.1 54,704 45,976 15.6
Turkey ISE 100 Index* 78,139 5.6 2.2 8.9 8.9 86,931 68,230 9.2

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

Equity Indices - Total Return 3-month
Global equities 1.2 7.9 7.9 9.7 56.4
US equities 3.4 10.9 10.9 25.8 91.3
Europe equities -0.1 0.4 0.4 -9.9 33.0
Asia Pacific ex Japan equities -4.9 6.8 6.8 -0.5 25.8
Japan equities -0.2 2.4 2.4 7.7 48.1
Latam equities -0.9 31.0 31.0 -20.7 -25.4
Emerging Markets equities -4.2 11.2 11.2 -7.5 6.5

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
BarCap GlobalAgg (Hedged in USD) 499 0.3 -2.3 3.9 3.9
JPM EMBI Global 739 1.4 -4.2 10.2 10.2
BarCap US Corporate Index (USD) 2,727 0.7 -2.8 6.1 6.1
BarCap Euro Corporate Index (Eur) 241 0.6 -1.2 4.7 4.7
BarCap Global High Yield (USD) 432 1.9 1.0 15.6 15.6
Markit iBoxx Asia ex-Japan  Bond Index (USD) 186 0.0 -2.7 5.3 5.3
Markit iBoxx Asia ex-Japan High-Yield Bond Index (USD) 235 0.3 -0.1 12.8 12.8

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
Year End
US Treasury yields (%)
3-Month 0.50 0.48 0.27 0.16 0.16
2-Year 1.19 1.11 0.76 1.05 1.05
5-Year 1.93 1.84 1.15 1.76 1.76
10-Year 2.44 2.38 1.59 2.27 2.27
30-Year 3.07 3.03 2.32 3.02 3.02
Developed market 10-year bond yields (%)
Japan 0.04 0.02 -0.09 0.26 0.26
UK 1.24 1.42 0.75 1.96 1.96
Germany 0.20 0.27 -0.12 0.63 0.63
France 0.68 0.75 0.18 0.99 0.99
Italy 1.81 1.99 1.19 1.59 1.59
Spain 1.38 1.55 0.88 1.77 1.77

Currencies (vs USD) Latest End of last mth. 3-months-
Developed markets
EUR/USD 1.05 1.06 1.12 1.09 1.09 1.16 1.04
GBP/USD 1.23 1.25 1.30 1.47 1.47 1.50 1.18
CHF/USD 0.98 0.98 1.03 1.00 1.00 1.06 0.97
CAD 1.34 1.34 1.31 1.38 1.38 1.47 1.25
JPY 117.0 114.5 101.4 120.2 120.2 121.7 99.0
AUD 1.39 1.35 1.31 1.37 1.37 1.46 1.28
NZD 1.44 1.41 1.37 1.46 1.46 1.58 1.34
HKD 7.76 7.76 7.76 7.75 7.75 7.83 7.75
CNY 6.95 6.89 6.67 6.49 6.49 6.96 6.45
INR 67.92 68.39 66.61 66.15 66.15 68.86 66.07
MYR 4.49 4.47 4.14 4.29 4.29 4.49 3.84
KRW 1,206 1,169 1,101 1,175 1,175 1,245 1,090
TWD 32.33 31.87 31.36 32.86 32.86 33.79 31.01
BRL 3.26 3.39 3.26 3.96 3.96 4.17 3.10
COP 3,002 3,074 2,882 3,175 3,175 3,453 2,817
MXN 20.73 20.57 19.39 17.21 17.21 21.39 17.05
RUB 61.54 64.11 62.88 72.52 72.52 85.96 60.00
ZAR 13.74 14.09 13.72 15.47 15.47 17.92 13.17
TRY 3.52 3.44 3.00 2.92 2.92 3.59 2.79

Commodities Latest MTD
(% )
Gold 1,152 -1.8 -12.4 8.6 8.6 1,375 1,062
Brent Oil 56.8 12.6 15.8 52.4 52.4 58 27
WTI Crude Oil 53.7 8.7 11.4 45.0 45.0 55 26
R/J CRB Futures Index 193 1.7 3.3 9.3 9.3 196 155
LME Copper 5,536 -5.0 13.8 17.7 17.7 6,046 4,318

Sources: Bloomberg, HSBC Global Asset Management. Data as at close of business 31 December 2016.
Past performance is not an indication of future returns.



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