A backdrop of plateauing rates and a broadly supportive growth-inflation mix for markets offers opportunities to broaden the universe of stocks to target in the final quarter of 2023.
In its latest quarterly investment outlook, HSBC Global Private Banking (HSBC GPB) wants to see investors avoid further concentration in tech and other rate-sensitive stocks by exposure to US financials, healthcare, industrials and consumer discretionary.
At the same time, it believes there are compelling growth opportunities in Asia.
“Thematically, we continue to strongly believe in the structural growth in Asia, the digital economy and the sustainability revolution. These trends intersect and reinforce each other, which is why we continue to look for the best ways to invest in them,” said Willem Sels, global chief investment officer at HSBC GPB.
The bank’s positioning over the last month reflects this view. It moved to neutral in mainland China and Hong Kong equities and turned more selective in sector positioning.
“Riding on the service consumption driven recovery in the region, we position in the mainland China internet, Asian airlines, travel, consumer discretionary and Macau gaming sectors under our new theme on Asia’s consumer spending boom,” added Cheuk Wan Fan, chief investment officer for HSBC GPB in Asia.
Rallying behind new targets
She is also encouraging investment in the net zero transition across the Asia region, to position for economic shifts towards long-term sustainability.
The bank’s high conviction themes include energy transition and independence, investing in biodiversity and Asia’s green transformation.
Outside of Asia, HSBC GPB also sees a broader equity opportunity due to the US economy remaining resilient.
While the bank maintains an overweight on US technology, additional opportunities are emerging in US industrials, financials, consumer discretionary and healthcare.
Highlighting its broad optimism on US stocks, HSBC GPB has added two new US themes to its existing consumer-focused American resilience theme: US industrial resurgence and innovation & opportunities in US Healthcare.
Further, in terms of country allocations, it is taking a positive stance on stocks in Mexico, Brazil, India and Indonesia.
“We stay mildly overweight emerging markets Asia equities with strong preference for India and Indonesia due to their promising structural and cyclical outlook, as captured by our theme on Asia’s rising tigers,” explained Cheuk Wan. Supply chain diversification and the rapid digitalisation of the domestic economy bode well for these two Asian markets.
Counting on quality
In the broader macro picture, HSBC GPB believes the US Federal Reserve’s hiking cycle is over and that the European Central Bank and Bank of England will both follow suit soon.
In turn, conditions for bond markets are supportive, leading the bank to keep high-quality medium-duration credit and US Treasuries as its largest overweight positions.
“After the Fed stops hiking, both bonds and equities tend to do well. So we continue to advocate that people invest their cash. But we really emphasise quality, both in terms of bond ratings and quality earnings and clear differentiation on that basis,” explained Sels.
The bank is also focused on navigating uncertain markets by adding hedge funds and volatility strategies to manage risks through uncorrelated assets and volatility strategies. It said it is looking “to take advantage of dispersion and to temper any volatility from temporary regime shifts”.