Recovering and Rebuilding - Investment Outlook First Quarter 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Recovering and Rebuilding Investment Outlook First Quarter 2021
Global Chief Market Strategist
Contributors Willem Sels
willem.sels@hsbcpb.com
+44 (0)207 860 5258
Global Investment Strategist, Managing Editor Head of Asset Allocation
Neha Sahni Stanko Milojevic
neha.sahni@hsbcpb.com stanko.milojevic@hsbcpb.com
+44 (0)20 7024 1341 +44 (0)20 7024 6577
Regional Chief Market Strategists
Belal Mohammed Khan Cheuk Wan Fan
belal.mohammed.khan@hsbcpb.com cheuk.wan.fan@hsbcpb.com
+41 (0)58 705 5273 +852 2899 8648
Jose Rasco Jonathan Sparks
jose.a.rasco@us.hsbc.com jonathan.sparks@hsbcpb.com
+1 (1)212 525 3264 +44 (0)20 7860 3248
Patrick Ho James Cheo
patrick.w.w.ho@hsbcpb.com james.cheo@hsbcpb.com
+852 8525 8691 +65 6658 3885
Global Head of Fixed Income Global Head of Equities
Laurent Lacroix Kevin Lyne Smith
laurent.lacroix@hsbcpb.com kevin.lyne-smith@hsbc.com
+44 (0)207 024 0613 +44 (0)207 860 6597
Global FX Coordinator Senior Fixed Income Credit Specialist
Nicoletta Trovisi Elena Kolchina
nicolettatrovisi@hsbc.com elena.kolchina@hsbcpb.com
+44 207 005 8569 +44 0207 860 3058
Head of Sustainable Product Offering Global Head of Hedge Funds
Sophie Haas Richard Berger
sophie.l.haas@hsbcpb.com richard.berger@hsbc.com
+44 (0) 207 024 0283 +44 (0) 203 359 6139
Global Market Analyst, Real Estate Investment Senior Product Specialist | Private Market Investments
Guy Sheppard Jorge Huitron
guy.r.sheppard@hsbc.com jorge.emilio.huitron@hsbc.com
+44 (0)207 024 0522 +44 (0) 203 359 7040
2
Contents
Letter to clients 05
What will drive markets in 2021 06
Portfolio Strategy: Top 10 Tips for 2021 10
Three hidden insights from the
Market Patchwork 12
Top Trends for 2021
1. Recharging Asia’s Growth 14
2. Digital Transformation 18
3. Recovering in a Low Yield World 22
4. Investing for a Sustainable Future24
Sustainability: Moving from
responsible to sustainable investing 26
Equities28
Fixed Income 32
FX and Commodities 36
Hedge Funds 38
Private Markets 40
Real Estate 42
Disclaimers44
Investment Outlook First Quarter 2021 3
Click below to watch our Chief Market Strategists
team discuss our market views for 2021.
Recovering and Rebuilding
Investment Outlook
First Quarter 2021
4
Welcome
Dear client
After a turbulent 2020, markets have All of these factors can lead to volatility, trend, but also because 2021 should be a
started to look forward to friendlier which means that investors need to remain pivotal moment for sustainable investing,
fundamentals. Global economic growth selective and diversified, but it also means due to strong government commitments,
is improving, and broadening beyond that 2021 will present hedge funds with a rapid technological advances in this
manufacturing and the digital economy. rich opportunity set. Importantly, none of area, and the major expansion in
The vaccine should allow consumer the potential triggers of volatility we listed investment options.
confidence to pick up, and the all-important above challenge our two fundamental
consumer sector to become an additional assumptions, that profits will expand and We continue to see many interesting
engine of growth. At the same time, interest rates will remain low. And as long investment opportunities in EM Asia, which
governments are rebuilding their as those two assumptions are valid, it is we prefer over other emerging markets.
economies, and the healthiest companies appropriate to maintain an overweight China’s dual circulation strategy, focused
are investing to adapt to the new post stance to risk assets and a cyclical on measures to boost domestic demand,
COVID-19 realities and opportunities. All of sector bias. technological innovation and market
this means that the global economy and liberalisation should boost growth, give
corporate profits should be bigger and The broadening of the economic expansion long term direction to investors and lead to
healthier in 2021 than they are currently. is naturally also broadening the sector fund flows into the region.
leadership in the stock markets, and
The other piece of good news for riskier we thus hold overweight positions in So, although the uncertainties and changes
assets is that policy rates should remain technology, industrials, materials, consumer around us may leave some investors
very low and stable, with US Treasury discretionary and communication uncomfortable, it is clear that there are
yields trading in a broad range. Rising services. But this broadening does not plenty of specific areas where companies
profits, combined with low rates, are a mean that technology – which had been can do well. And on the aggregate,
powerful combination for risk assets. principal engine of stock markets – will the cyclical improvement and a strong
We therefore maintain our overweight underperform in 2021. The digital revolution commitment from central banks to low
on global equities, investment grade and continues unabated, and technology interest rates not only support the current
BB-rated corporate bonds, and EM hard leaders should continue to see strong high valuations of most risk assets, but also
currency bonds. growth in the medium term. These tech keep us invested with an eye on further
leaders can be found outside of the tech upside in riskier assets. Holding lots of cash
That does not mean that 2021 will be sector as well, in areas such as automation, is not the answer to managing the volatility
uneventful. First, the vaccine rollout is health technology and 5G. Technological we will undoubtedly experience in 2021.
unlikely to be an entirely smooth process, leadership is one of the key determinants Rather, we remain invested with a pro-risk
and any delay or disappointment in of whether a company is fit for the future. and cyclical stance, but with a selective
adoption rates could lead to some By contrast, we note that many value approach and plenty of diversifiers,
temporary market volatility. Second, we stocks have outdated business models and including gold, high rated bonds, hedge
foresee some temporary upside in inflation investors should beware of falling into such funds and other alternative assets.
readings early in the year, as crude oil’s value traps.
fall from $70 to $20 between January and We would like to wish all of our clients a
March 2020 will cause year-on-year base Businesses that want to be future-proof not happy and prosperous New Year.
effects between January and March 2021. only need to be part of the digital revolution,
Third, corporate default rates will probably but also the sustainability revolution. And in
go up further, before they come down. our view, their performance will be better if
Fourth, on the political front, Brexit, the they aren’t just part of it, but if they lead it.
new US administration’s foreign policy, This is because such businesses that rank
Georgia’s Senate race or frictions with best in class will be earlier to identify the
Congress, can all lead to political headlines. ESG-related threats and opportunities, and
And lastly, of course, the run-up in be more likely to have the talent to adapt to Willem Sels,
valuations to date can lead to profit taking them. For investors, sustainability not only Global Chief Market Strategist
and adjustments in investor positioning. matters because it is a strong and durable
10th December 2020
Investment Outlook First Quarter 2021 5
What will drive markets in
2021?
The basics » Rebuilding: Fiscal spending is headline CPI and to temporary bond
supportive of growth, and is likely market volatility, but this should not
Economic outlook: to focus on 5G, green infrastructure trigger a change in central bank policy.
and housing support. In some EM » In EM, there is now reduced scope for
» Recovering: Manufacturing has
countries, the scope for fiscal support further rate cuts. In some countries,
been stronger than services. Online
is more limited. Companies will also inflation could pick up following
consumption has been resilient,
invest for the new economic realities, in currency depreciation, and the higher
especially in the US and China. In
areas such as automation, supply chain weight of oil in their CPI measures
2021, the rollout of vaccines against
relocation, 5G and data capabilities. when compared to DM.
COVID-19 should gradually boost
consumption, and hence broaden
Interest rates and bond yields: Risk premia:
the recovery.
» In developed markets (DM), we expect » With the US elections and Brexit
» Geographical split: economic
low and stable interest rates, and behind us, and reduced geopolitical
momentum is most positive in the US
central bank support to keep safe uncertainty, risk premia may fall,
and China, with China contributing
haven bond yields low. leading to a relief rally in risk assets and
most to global GDP growth in 2021.
Europe may accelerate later in the » Higher government debt and deficits carry assets (especially when there is
year but COVID is a major challenge should not lead to inflation in DM. better news re: COVID).
for now. Some cost pressures and oil price base
effects could lead to a small uptick in Equities
We expect a global recovery and believe inflation should remain relatively low. » Market cap: the relatively high weight
of technology stocks favours US and
Real GDP growth Inflation Chinese benchmarks
» China’s Dual Circulation strategy
2020f 2021f 2022f 2020f 2021f 2022f supports consumer demand, which
could be helpful for Western firms too.
World -4.1 4.4 3.3 2.5 2.6 2.6 Financial market liberalisation should
be a positive for CNY. In technology
Developed -5.7 3.5 2.5 0.7 1.3 1.5 however, China has a desire to localise
core technologies.
Emerging -1.8 5.7 4.3 3.7 3.5 3.3 » Income through equities: dividends
could be raised selectively, and a
US -4.1 3.1 2.5 1.2 1.8 1.8 search for income can help REITs with
resilient fundamentals
Eurozone -7.5 4.5 2.8 0.2 0.7 1.4
UK -11.0 3.7 4.8 0.9 1.5 1.9
Japan -5.5 2.3 0.8 0.0 0.1 0.1
Mainland China 2.4 7.5 5.6 2.7 2.0 1.7
India -8.0 7.2 4.5 5.7 4.2 4.4
Russia -4.3 2.4 1.3 3.2 3.5 3.5
Brazil -4.2 3.2 2.3 2.7 2.6 3.4
HSBC Global Research, HSBC Private Banking as at 9 December 2020. Forecasts are subject to change.
6
Sustainability for a better China currently accounts for 18% of global GDP, but may be responsible for 32%
of the world’s growth in 2021 and 2022.
future
» Investor flows and investor scrutiny US Euro area UK Japan
will force companies to become more Other DM China India Brazil
sustainable, and will increase share Russia Other EM Asia Other EM
price performance differentiation 100%
between firms with high or low 90%
sustainability scores. 80%
» Commitments in the 2015 COP21 70%
Paris agreement, and the upcoming 60%
UN COP26 Climate Change 50%
Conference in the UK will continue 40%
to lead to large public investment. 30%
Our high conviction themes include 20%
Climate Change - Mitigation and 10%
Adaptation Opportunities and China’s 0%
Green Revolution. Share in 2020 world GDP Contribution to 2021 and 2022
world GDP growth
Source: IMF, HSBC Global Research, HSBC Private Banking as at 9 December 2020.
Investment Outlook First Quarter 2021 7
What to watch
The question of rotation: We believe Fed rates will remain unchanged in 2021, and Treasuries should
In 2020, there were several short-lived range trade.
episodes of market rotation from large 8%
cap to small cap, from high quality to 10-year Treasury yield Fed funds policy rate
lower quality stocks, and from growth 7%
to value stocks. None of those were
sustained, and we think investors should 6%
remain selective when participating in
this rotation. We doubt that bond yields 5%
will move higher to support the rotation,
and we think growth stocks have 4%
structural support.
3%
Downside risks: 2%
» Path of the virus and speed of the
forecasts
vaccine rollout: it remains unclear 1%
how quickly the vaccine rollout will
halt lock-downs, when the active 0
population will be vaccinated and Jan-00 Jan-05 Jan-10 Jan-15 Jan-20
how much it lifts consumer confidence Source: Bloomberg, HSBC Private banking as at 9 December 2020. Past performance is not a reliable
and spending. indicator of future performance. Forecasts are subject to change.
» Corporate defaults: markets currently
anticipate a spike in defaults, followed
by quick fall. There is a risk that this fall
could be delayed.
» Potential EM stress: COVID-19 related How tech and new economy stocks fare will impact the relative performance of
economic or financial stress could lead equity indices.
to wider spreads and falling currencies
in some weaker EM countries IT Consumer disc retionary Communic ations services
Healthc are Financ ials Industrials
» Climate risks: there are bound to
Consumer staples Utilities Real estate
be natural disasters in 2021, which
will trigger more regulation and Materials Energy
sector weight in benchmark indices
investment, or accidents which could 100%
hurt specific companies 90%
80%
» Taxation will have to increase at
70%
some point to finance the increased 60%
deficits. This will probably have to 50%
wait till 2022, but fears of tax rises 40%
could hit confidence. 30%
20%
» The new US administration will likely 10%
take a multi-lateral foreign policy 0%
approach, but geopolitical risks have S&P 500 Europe UK Shanghai ChiNext Hang
Stoxx 600 FTSE 100 Comp Seng
not been eliminated.
Source: Bloomberg, HSBC Private Banking as at 9 December 2020.
» Positioning and valuations: when
market optimism is elevated, and
momentum has driven markets
towards new highs, there is a risk
of profit taking and temporary
market volatility.
8
Investment Outlook First Quarter 2021 9
Portfolio Strategy
Top 10 Tips for 2021
1 ide the ‘Recovery and
R
Rebuilding’ wave
4 Stick to the Strategy business models, which we see as
value traps.
We have a risk-on stance in our model We believe it is helpful to keep the positive
portfolio, with overweights in global
equities, investment grade and BB-rated
growth and rate fundamentals in front of
our minds throughout 2021 to avoid being
8 Don’t Give up on Gold
high yield bonds, and hard currency blown off-course. We foresee volatility We foresee mild upside for the gold price
emerging market bonds. We fund this on several fronts, but much of it may be and maintain an overweight in our model
principally through our underweight on noise. During 2021, oil price base effects portfolios. Low rates mean the opportunity
safe haven bonds. In equities, we have may give the impression that inflation is cost of foregoing a coupon is small. The
a cyclical sector stance. All of this is picking up, and the economic recovery market volatility we foresee, and the
based on our view that the global may trigger speculation about policy remaining uncertainties around COVID-19
economy is recovering and rebuilding, normalisation. But ultimately, the low for and geopolitics mean that diversification
earnings should improve and equity and longer rate environment should prevail. remains important. Many investors have
credit valuations are supported by the low COVID-19 related and other headwinds reduced high rated bond exposure, which
yield environment. could create headlines, but ultimately, the raises the importance to add gold.
gradual recovery should prevail.
2 Asia stays Ahead
9 Divergent Dollar
We continue to prefer Asian equity
5 Digital Dominance
The US dollar was strong for many years
markets over other EM stocks. Asia’s The digital revolution continues to drive but fell significantly in 2020. From here,
growing middle classes boost domestic much of the profit growth, and separates we think it will be more directionless,
demand and Asia has a bigger share of winners from laggards, across sectors. with diverging paths depending on the
technology and advanced manufacturing Although equity leadership is broadening, currency pair. We think EUR and GBP
than in other EM markets. China’s dual tech should continue to perform well will see weakness against USD, while
circulation plan sets a clear direction and in 2021. AUD, NZD, NOK and SEK should
should boost investor confidence. And outperform USD.
Asian countries on average have more
policy flexibility than other EM. Investors 6 Adopt a Sound
Sustainability Strategy
are still underweight on EM assets and as
The sustainability revolution is arguably
10 Healthy Fundamentals for
Hedge Funds
they broaden their search for returns in a
as much as a game changer as the 2021 should provide a rich opportunity
risk-on environment, Asia should
digital revolution. Sustainability should set for good hedge fund managers.
see inflows.
therefore be integrated both in the core Markets’ focus on where inflation and
portfolio strategy (where it can help rates are going can create volatility and
3 Low for a Lot Longer investors outperform or reduce risks),
and in thematic satellites (focusing on the
opportunities. Hedge funds can pick
winners and losers from the changes
We stick to our view that bond yields will opportunities). around COVID-19 and the digital
be kept low by structural factors, and revolution. And defaults and restructuring
that stronger growth should not push up
G7 policy rates. We believe the 10-year 7 Cheap can be Costly provide opportunities for distressed hedge
fund strategies.
Treasury yield will largely range-trade
Our cyclical sector tilt does not mean that
below 1% in 2021. We react to this
we move into low quality. We maintain our
environment in three ways. First, we avoid
focus on quality. Strong balance sheets
holding high cash balances, as the low
will be important if COVID-19 keeps cash
cash rates present an opportunity cost.
flow below normal, and allow companies
Secondly, we look for a yield pickup in
to invest and adapt to the changing
Investment Grade, BB High Yield and
economy. And while there may be some
EM Hard Currency bonds. Third, we
opportunities in value stocks, we generally
see opportunities in stocks with resilient
continue to prefer growth stocks. We
dividends, selective REITs, real estate and
beware of value stocks with outdated
private credit.
10Q1 2021 Investment Outlook
Top Four Investment
Q1 2021 Trends for 2021 and Q1 Global High Conviction Themes
Outlook
Top Four Trends for 2021 and Q1 Global High Conviction Themes
Top Four Trends for 2021 and
Q1 Global High Conviction Themes
Recharging Asia's Growth
Recharging Asia's Growth
Recovering in a Low Yield World CORE Investing for a Sustainable Future
Recovering in a Low Yield World CORE Investing for a Sustainable Future
Digital Transformation
Digital Transformation
Recharging Asia's Growth Recovering in a Low Yield World Digital Transformation Investing for a Sustainable Future
Riding on China's Five-Year Plan Reopening America 5G: NextGen Connectivity Climate Change – Mitigation and
Asia's SupplyAsia's
ChainGrowth
Revamp Resilient Income Healthcare Innovation Adaptation Opportunities
Recharging Recovering in a Low Yield World Digital Transformation Investing for a Sustainable Future
New Asian Consumer Focus on Quality Digital Consumer China's Green Revolution
Riding on China's Five-Year Plan Reopening America 5G: NextGen Connectivity Climate Change
Sourcing Income in–aMitigation
Sustainableand
Asian Credit Opportunities EM Debt – Carry in a Low Automation – Shifting up a
Asia's Supply Chain Revamp Resilient
Yield Income Healthcare Innovation
Gear Adaptation Opportunities
Way
Environment
New Asian Consumer Focus
DM on Quality Digital Consumer China's
Gender Green Revolution
Diversity in Business
Financials Credit
Asian Credit Opportunities EM Debt – Carry in a Low Automation – Shifting up a Sourcing Income in a Sustainable
Yield Environment Gear Way
DM Financials Credit Gender Diversity in Business
Cash Underweight Cash rates are unattractive in most markets and present an opportunity cost.
Government Underweight Safe haven government bond yields are likely to mostly range trade at a low level, and
bonds provide little attraction. We are mainly underweight to finance the overweight in other
asset classes.
Investment Overweight We prefer IG over safe haven bonds to capture the yield pickup. That said, spreads have
Grade bonds tightened and investors should be aware that spread or rate volatility can impact returns
(IG) substantially.
High Yield Overweight We are overweight on BB-rated HY to capture the carry, but believe low rated HY does
bonds (HY) not adequately compensate for default risk, which we think is still on the rise.
EM Hard Overweight We see carry opportunities in EM HC but focus on countries and companies with
Currency resilient fundamentals.
bonds (HC)
EM Local Neutral EM currencies have a mixed outlook, and this will impact returns. Hence, we remain
Currency selective in the EM local currency space.
bonds (LC)
Equities Overweight We are overweight on stocks as earnings should benefit from the economic recovery,
and low bond yields should support current valuations. We prefer the US and China over
Europe, and Asia over other EM.
Commodities Overweight We overweight gold as we see mild upside and appreciate its diversification potential.
We have a neutral outlook on oil.
Hedge Funds Neutral HF will have a rich opportunity set in 2021 and are an important diversifier in portfolios.
Investment Outlook First Quarter 2021 11Three hidden insights from
the Market Patchwork
Most investors have seen the “market example, an individual, concentrated cash over time, as the rightmost column
patchwork” chart at least once. One asset class could easily sell off by 50%. in the chart would indicate. Indeed, since
of the key messages in the chart is After that, a 100% return is needed just 2006, the performance of cash lags that of
immediately obvious: performance to break-even. This asymmetry is much most other asset classes.
of individual asset classes is highly smaller when a portfolio is less volatile
unpredictable – in any given year, they due to diversification: after a 20% sell-off, 3) An individual asset class can do
can perform either very well or very a rally of 25% is sufficient to bring us back really well even over an extended
poorly. Diversifying the portfolio, on to the starting point. Volatility drag is the period of time, but that does not
the other hand, can help avoid having reason why simply investing everything necessarily imply its superiority.
a very bad year. in an asset class with the highest average
As an example, high yield bonds
However, careful analysis of this chart annual return can lead to disappointing
outperformed the diversified portfolio
can also point to several less obvious outcomes. This is why diversification is of
by a meaningful margin from 2006 to
messages, some of which are quite crucial importance for the long term, not
2020, with a similar level of volatility. But
powerful. In the remainder of this piece, just the short term.
this asset class only represents around
we will discuss three of these “hidden 2% of the global, investable equity and
insights” from this chart. 2) Cash outperformed most markets in bond markets. Superior performance of
volatile years such as 2008 and 2018, a narrow asset class or sector may be an
1) Diversifying is important for the but remaining invested was key to outcome of chance, even over a relatively
long term, not just the short term. meeting investment objectives. long time horizon. In the case of high yield
Listed private equity ranks 1st in four Market analysis and forecasts can easily debt, this strong performance may have
different years, but for the overall period tempt investors to try to liquidate their been driven by one-off forces, such as an
its rank is 6. Diversified portfolio’s best holdings just before a crash and try to increase in demand for high yield bonds,
rank is 3rd in only one single year, its get back in at the lows. But a world in as the asset class gradually emerged
overall period rank is 4, higher than listed which it is possible to time the markets into the mainstream. And while interest
private equity. Why is this so? This is successfully and consistently would rates should stay low, we do not believe
because with concentrated investments be paradoxical. In such a world, there they can fall much further over the next
(such as investments in a specific wouldn’t be a risk premium to be earned, decade. On a forward looking basis, a
sector, e.g. listed private equity) long and all asset classes would have the same multi-asset portfolio allows investors to
term performance suffers from volatility return as cash. In the real world, building cast a wider net and capture a broader
drag, whilst the diversified portfolio a diversified portfolio and remaining opportunity set, thereby minimising
benefits from volatility reduction. As an invested (both in bad and good times) is unrewarded, idiosyncratic risk.
the only reliable way of outperforming
12Market Patchwork.
Ann.
2020 Return
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD (2006-
2020.YTD)
Listed Gov Bonds EM Hard Listed Listed Real Hedge Listed EM Equities Gov Bonds Listed DM Equities DM Equities
Private 5.8% Currency Private Estate Funds 2.0% Private 37.8% 2.7% Private 11.7% 7.7%
Equity Debt 43.9% Equity 15.9% Equity Equity
31.5% 37.2% 15.4% 46.6%
Listed Real Investment Listed DM Equities Gov Bonds Gov Bonds High Yield Listed Cash 2.6% DM Equities EM Equities High Yield
Estate Grade Private 27.4% 8.3% 1.3% Bonds Private 28.4% 10.5% Bonds 7.4%
20.4% Bonds 4.9% Equity 14.4% Equity
31.3% 26.1%
EM Equities High Yield Listed Real Hedge Investment EM Hard Com- DM Equities Leveraged Listed Real Investment EM Hard
19.2% Bonds 4.1% Estate Funds 9.3% Grade Currency modities 23.1% Loans 0.5% Estate Grade Currency
28.7% Bonds 7.7% Debt 0.7% 13.3% 23.1% Bonds 7.6% Debt 6.7%
Com- Leveraged EM Equities Diversified EM Hard Cash 0.4% EM Equities EM Local Investment EM Equities Hedge EM Equities
modities Loans 1.5% 18.6% portfolio Currency 11.6% Debt 15.2% Grade 18.9% Funds 6.0% 6.5%
18.9% 8.6% Debt 7.2% Bonds
(0.9%)
EM Local Cash 0.4% High Yield High Yield DM Equities Listed Real Leveraged Diversified Hedge Diversified Gov Bonds Diversified
Debt 15.7% Bonds Bonds 6.2% 5.5% Estate 0.1% Loans 10.1% portfolio Funds (1.1%) portfolio 5.4% portfolio
18.4% 14.2% 16.9% 6.4%
High Yield Hedge EM Local Leveraged Hedge Investment EM Local Listed Real High Yield High Yield Diversified Hedge
Bonds Funds (1.7%) Debt 16.8% Loans 5.3% Funds 5.0% Grade Debt 9.9% Estate 11.4% Bonds Bonds portfolio Funds 6.2%
14.5% Bonds (1.7%) 14.7% 5.3%
(0.2%)
Diversified EM Local DM Equities Listed Real High Yield DM Equities EM Hard Hedge EM Hard EM Hard High Yield Listed
portfolio Debt (1.8%) 16.5% Estate 4.4% Bonds 3.4% (0.3%) Currency Funds 9.6% Currency Currency Bonds 5.0% Private
13.1% Debt 9.1% Debt (3.7%) Debt 14.5% Equity 5.8%
DM Equities Diversified Diversified Cash 0.4% Diversified Leveraged Diversified EM Hard Listed Real EM Local EM Hard Investment
12.3% portfolio portfolio portfolio Loans portfolio Currency Estate Debt 13.5% Currency Grade Bonds
(3.4%) 15.4% 2.9% (0.7%) 8.3% Debt 9.3% (4.7%) Debt 3.9% 5.3%
EM Hard DM Equities Investment Investment Leveraged High Yield DM Equities High Yield Diversified Investment Leveraged Listed Real
Currency (5.0%) Grade Grade Loans 1.6% Bonds 8.2% Bonds 7.8% portfolio Grade Loans 1.8% Estate 4.9%
Debt 11.8% Bonds Bonds 0.0% (1.0%) (4.8%) Bonds
10.8% 12.5%
Hedge Listed Real Leveraged Gov Bonds Cash 0.3% Listed Investment Investment EM Local Com- Cash 1.2% EM Local
Funds 11.6% Estate Loans 9.6% (0.3%) Private Grade Grade Debt (6.2%) modities Debt 4.9%
(5.8%) Equity Bonds 6.1% Bonds 5.7% 10.1%
(1.7%)
Leveraged Com- Hedge EM Equities Listed Diversified Listed Real Com- DM Equities Leveraged EM Local Leveraged
Loans 10.1% modities Funds 7.3% (2.3%) Private portfolio Estate 5.0% modities (8.2%) Loans 8.6% Debt (0.3%) Loans 4.6%
(8.0%) Equity (3.3%) 4.4%
(0.1%)
Investment EM Hard Gov Bonds EM Hard EM Equities EM Equities Gov Bonds Leveraged Com- Gov Bonds Listed Gov Bonds
Grade Currency 4.4% Currency (1.8%) (14.6%) 3.9% Loans 4.1% modities 7.2% Private 4.3%
Bonds 7.4% Debt (11.9%) Debt (6.0%) (8.9%) Equity
(0.4%)
Gov Bonds EM Equities Com- Com- EM Local EM Local Hedge Gov Bonds Listed Hedge Com- Cash 1.9%
3.6% (18.2%) modities modities Debt (5.7%) Debt Funds 3.0% 2.1% Private Funds 5.6% modities
2.9% (7.8%) (14.9%) Equity (8.3%)
(12.7%)
Cash 0.5% Listed Cash 0.8% EM Local Com- Com- Cash 1.1% Cash 1.4% EM Equities Cash 2.7% Listed Real Com-
Private Debt (9.0%) modities modities (14.2%) Estate modities
Equity (18.8%) (25.3%) (11.4%) (1.9%)
(18.9%)
Source: HSBC Private Banking as at 9 December 2020. Past performance is not a reliable indicator of future performance.
Investment Outlook First Quarter 2021 13Top Trends for 2021
1. Recharging Asia’s Growth
Led by a strong rebound in China, opening and technological innovation to New Asian Consumer
the Asian economy is poised to stay build a higher quality and more sustainable Asia’s digital transformation has seen
ahead in the global recovery from economic growth model. China set the phenomenal acceleration during the
the pandemic recession. Being the growth target to double its GDP per capita pandemic and we believe this structural
first in and out of the COVID-19 crisis, income by 2035 and achieve high-income trend will gather further momentum after
China has witnessed a broadening country status by the end of the five-year the crisis. When we look at what will
recovery with the November Caixin plan. The new sustainable growth model recharge Asia’s growth in 2021, the rise
manufacturing PMI hitting a new high will be supported by improvements of its middle class consumers and strong
for the decade. Supported by robust in productivity, innovation, domestic private wealth growth stand out.
middle class consumer demand, demand, environment protection, and
high policy flexibility, effective virus social development. China’s focus on Asia’s more advanced technology
containment and increasingly robust quality and sustainable growth goes infrastructure than other EM supports the
IT infrastructure, Asia ex-Japan GDP is hand-in-hand with its long-term goal of rapid adoption of digital consumption and
forecast to recover to 6.7% growth in achieving carbon neutrality by 2060. We automation. Our New Asian Consumer
2021 from -0.7% contraction in 2020. expect the new five-year plan will set theme focuses on opportunities in digital
We see promising growth potential aggressive targets for development of consumer facing companies, healthcare
in the digital consumer facing sectors electric vehicles and renewable energy and wellness providers. Despite the
and attractive recovery opportunities for approval by the upcoming National outperformance of Chinese and Asian
in industries which are re-emerging People’s Congress in March 2021. digital economy stocks in 2020, we remain
from the economic reopening and positive on the growth outlook of leaders
normalisation. The Regional Comprehensive Economic in ecommerce, online education, fintech,
Partnership (RCEP) signed on 15 online entertainment and food delivery.
Notably China’s 14th Five-Year Plan for November by 15 Asian economies marked
2021-2025 will kick-start a new economic a key milestone of trade liberalisation In Southeast Asia, digital consumption
expansion cycle with the roadmap for the in the region. We expect the RCEP, the has recorded strong growth this year due
next phase of structural reforms, market world’s largest free trade bloc covering to impact of the pandemic lockdowns.
over 30% of global GDP, to further Southeast Asia added 40m new internet
China’s 14th Five-Year Plan focuses entrench Asia’s role as the centre of global users in 2020 with one-third of the digital
on quality growth and innovation. commerce and manufacturing. According service users coming online for the first
to our forecasts, the share of the 15 RCEP time due to COVID-19. According to a
members will rise to over 50% of global recent research conducted by Google,
output by 2030. The largest beneficiaries Temasek and Bain, online spending in
from RCEP are likely to be South Korea, Southeast Asia is projected to triple to
Quality growth
Japan, Malaysia, Thailand and China. more than USD300bn by 2025. We are
With new structural growth engines, the bullish on ecommerce companies in
cyclical recovery in domestic demand and the ASEAN region on the back of rapid
14th the tailwind from the global economic adoption of online consumption.
Five-Year recovery, Asia should see multiple
Plan
investment opportunities in the equity
Innovation and ‘Dual
technology Circulation’
and credit markets. We continue to prefer
upgrade strategy Asian equities and bonds over other EM
markets and we stay overweight equities
in China, South Korea and Singapore and
Chinese credit in both hard currency and
Source: HSBC Private Banking as of 9 December
local currency.
2020.
14Riding on China’s Five-Year Plan (FYP) healthcare and wellness providers. chain sectors which would benefit from
We launched a new theme to ride Under the “Internal Circulation” strategy, strong policy support to accelerate
on China’s 14th FYP with focus on China targets to build strong domestic digital transformation. We also favour
opportunities from the “Dual Circulation” independent growth and promote prominent players in cloud technologies,
strategy that pivots towards domestic technological innovation with focus data centers computer servers and
consumption, technology upgrade, market on technology localisation and import 5G technologies. Another area that
opening and financial liberalisation. Under substitution. To drive the creativity and China would like to further develop and
the “Internal Circulation” strategy, China productivity gains in longer term, we achieve self-sufficiency is likely to be the
is expected to accelerate the household expect China will significantly increase healthcare sector. Chinese biotech leaders
registration system reform and rural land R&D spending to 3% of GDP for the new with cutting edge technologies and top
reform and provide further support for FYP, up from 2.2% in 2019. talents could perform well with strong
the rising middle class to boost domestic private and public funding support. The
demand and household income. Higher Beneficiaries of the FYP include government’s strong policy focus on
disposable income should bode well for domestic industry leaders in the fundamental and frontier research will
the digital consumer facing companies, semiconductor, robotics, automation, boost education spending and support the
smart manufacturing, and digital supply education sector.
We expect consumption in Asia to rebound sharply in 2021 with new
structural trends.
10.0
China
Asia ex-China and Japan
8.0
6.0
4.0
Real consumption growth
2.0
0.0
(2.0)
(4.0)
(6.0)
(8.0)
2015 2016 2017 2018 2019 2020F 2021F 2022F
Source: HSBC Global Research forecasts, HSBC Private Banking as of 9 December 2020.
Investment Outlook First Quarter 2021 15Under the “External Circulation” strategy, China. This suggested that China is still China. Asian frontier markets, such as
China will further accelerate financial gaining rather than losing global market Vietnam and Bangladesh, continue to
market liberalisation and level the playing share due to strong competitiveness of its move up the value chain given lower
field for local and foreign companies. We manufacturing supply chains supported labour costs, market liberalisation and
expect the government to cut trade tariffs by the strengthening technological economic reforms. We expect China
and allow more foreign investments into capability, strong industrial network to increase imports from the rest of
various sectors. Further liberalisation of effects, well-established transportation Asia after signing the RCEP and this
the onshore A-share and bond markets via and IT infrastructure, and a sizeable pool will provide an important catalyst to
Stock and Bond Connect programmes, of skilled labour at a relatively low cost. accelerate Asia’s supply chains upgrade.
together with global index inclusion and China’s global export share has climbed We anticipate the RCEP agreement will
capital market reforms, should accelerate back to its earlier peak reached in early concentrate global supply chains further
RMB internationalisation and bring new 2016 while many other Asian economies in Asia due to enhanced competitiveness
opportunities to domestic and foreign are not far behind. of the region’s manufacturing base versus
financial institutions and selected fintech the global peers and further expansion of
leaders. We also favour companies with Geopolitical factors should continue intra-regional trade.
significant exposure in Shenzhen, China’s to reshape Asia’s supply chains after
Silicon Valley, and the Greater Bay Area COVID-19. President-elect Joe Biden’s Asian Credit Opportunities
on the back of favourable government “Made in America” and “Build Back
Positioning for the low yield world, we
policies to build Shenzhen as a “model Better” plans indicate that he is likely to
remain bullish on the theme of Asian
city” and key growth engine with deeper maintain some protectionist measures
Credit Opportunities due to the attractive
integration with Hong Kong and Macau against China. We expect the Biden
risk/return trade-off and substantial yield
administration to promote onshoring
pickup of Asian corporate bonds over
Asia’s Supply Chain Revamp supply chains of industries of national
developed market credit. The recent
importance, like pharmaceutical products
COVID-19 has caused unprecedented China SOE onshore bond defaults have
and medical equipment and may continue
disruptions to Asia’s supply chains, as added volatility in the credit market and
to restrict technology transfer to China.
closed borders, pandemic lockdowns pushed interbank lending rates higher.
This could benefit Japanese, Taiwanese
and transportation bottlenecks But we expect the market impact of the
and Korean technology leaders as Beijing
raised concerns about the risks of SOE defaults to be temporary, because
is expected to revamp its supply chains by
over-concentration of supply chains. we believe the government will attempt to
reducing reliance on US technologies.
Despite frequent market talk about put in place a more market-driven default
massive supply chain relocation from mechanism for SOEs. This should help
We highlight that ASEAN countries are
China due to US-China tensions and restore financial discipline in the onshore
geared beneficiaries of the RCEP as the
COVID-19, the threat has remained more bond market by adjusting risk-reward
free trade deal will unleash their growth
rhetoric than reality. Chinese supply assumptions and contribute to more
potential through trade liberalisation
chains have proven surprisingly resilient efficient capital allocation in the long term.
and improved outlook for foreign direct
in withstanding the pandemic challenges, Within Asian credit, we stay overweight
investment. We believe that RCEP
as reflected by outperformance of Chinese hard currency and local currency
can further deepen integration of the
China’s exports and inward foreign direct bonds. Based on our base case scenario
ASEAN countries into Asia’s supply
investment flows against its main global that the US-China phase-one trade deal
chains. Structural reforms in the ASEAN
peers in 2020. In spite of geopolitical will hold and there will be no additional
economies, such as the omnibus law in
tensions between Washington and trade tariffs, we forecast RMB to stay
Indonesia, should attract foreign direct
Beijing, China’s exports to the US have firm at 6.60 against the USD by end-2021.
investment inflows as producers are in
posted a strong rebound in 2020 due A stable RMB supports our overweight
search for lower operating costs and
to robust US demand for medical and position on Chinese local currency bonds.
diversification of supply chains from
pandemic-related products made in
16Investment Outlook First Quarter 2021 17
2. Digital Transformation
2020 has been volatile and far from wider range of products. This trend Why is the introduction of 5G noteworthy?
predictable. However, as events has already reached its end game for A simple analogy would be the impact of
unfolded, it has proven to be a products such as CDs, DVDs and to a the building of motorways in areas that
watershed year, accelerating four key large extent books. previously only had simple country roads.
trends that should boost activity and
innovation, both in 2021 and in the But this is not the end of the story so to While 5G does not represent a huge
longer term. Together, these trends speak. Just as book and record stores improvement on existing 4G technology
create a step-change in the process of have largely disappeared from most high for consumers, it will immediately improve
the world’s digital transformation. streets, and a few large online sellers three key aspects of the customer
thought they dominated the market, experience: 1) network capacity, thereby
Rise of the digital consumer technology has enabled consumers reducing slow or down networks; 2)
Traditionally, the adoption of technology to access music and literature without improving download speeds, which is
tends to be quickest with the younger owning the CD, DVD, book, magazine particularly important for streaming of
generations, percolating more slowly or newspaper. The arrival of streaming movies and video services; 3) latency or
to older generations, if at all. But the services is transforming the landscape response time, an important feature for the
pandemic has forced all generations to yet again. New providers have entered growing online gaming community.
become digital consumers as they have the market, whilst existing online stores
no alternative. For example, retirees have have adapted quickly. For investors, it is These three improvements are important
been slower to use online shopping even important to keep track and keep evolving in maintaining the momentum of the
though they could potentially benefit with the market trends. trends we already mentioned in the
substantially in the longer term. The silver consumer market. By comparison, there
lining for the silver surfers of the pandemic Connectivity and 5G are other less well-known but more
is that circumstance have forced them substantial benefits for industrial users,
The rise of the digital consumer is driving
online and they are quickly realising the where innovations have been waiting
the need for ever better infrastructure to
benefits of becoming more tech savvy. for the development of this key enabling
facilitate the consumption of these new
There is little joy to be had from hours technology. 5G is that technology that
products and services. Originally, going
lost with the weekly trudge to the local will facilitate the interconnectivity of
online was through a personal computer,
supermarket, only to return burdened machines and devices (Internet of Things),
via a modem using existing fixed-line
with heavy shopping bags in all sorts of and the development of augmented
telephone copper wires and through an
weather and often using public transport. and virtual services and products. This
internet provider, with purchases paid
A few clicks can avoid this thankless task. super-connectivity offers great potential
via a credit card. In contrast today, the
As these often older, wealthier generations for automation in both the home and in
majority of purchases are from a mobile
are coming online, it creates threats and the office as devices become part of a
device, often paid from a digital wallet,
opportunities for retailers: 1) as these network. These are just a few examples of
with transactions taking seconds rather
bulwarks of the high street shift online, the large potential that could be unlocked
than minutes. This poses increasing
many more retail outlets are likely to face by the introduction of 5G. For investors,
demands on the infrastructure, particularly
a bleak future, but 2) online sales from this 5G offers opportunities in the related
mobile networks, and has driven the
new wave of older, generally wealthier infrastructure, 5G devices and in any
development and deployment of each
buyers provide a new source of growth for company that sees the benefits of 5G to
new generation of mobile networks. The
retailers as buying becomes easier. outperform its competitors.
fifth generation (5G) began its rollout at
the end of 2019 in a handful of countries
The trend for an ever higher percentage including China, South Korea, the USA Automation
of consumer purchases to shift online and the UK. It happened at a slow pace The utilisation of autonomous or
is unlikely to abate. It is likely to be initially as providers and consumers were semi-autonomous machines has been a
self-perpetuating as high streets are both reluctant to invest in new hardware. feature for some time of the auto industry,
hollowed-out, and choice there may However, recent upgrades to the 5G which is the largest single industry user
become increasingly restricted. In technology together with a new range of of commercial robots. As the technology
contrast, online stores have a far wider handsets may trigger a wider adoption. has advanced, so have its applications, but
customer base and so are able to carry a this has been slow and somewhat limited.
18The exponential increase in data usage raises the need for powerful and mobile
connections through 5G.
450,000
400,000
350,000
global petabytes per month
300,000
250,000
200,000
150,000
100,000
50,000
0
1990 1994 1998 2002 2006 2010 2014 2018 2022
Source: Cisco, HSBC Private Banking as at 9 December 2020. Forecasts are subject to change.
The virus outbreak has quickly changed the adoption of technologies, and much
of the change is likely to remain with us.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Digitization of Digitization of Digitization of Automation
Supply Chain Customer Channels employee interactions and AI
Significantly Accelerated Somewhat Accelerated No change
Somewhat Decelerated Significantly Decelerated
Source: McKinsey survey of 800 executives, HSBC Private Banking as at 9 December 2020.
Investment Outlook First Quarter 2021 19Recent developments in AI, visual and automation. Meanwhile, in developed psychometric testing, video analysis and
orientation technologies should accelerate markets, the growing desire to re-onshore robo-interviewing. It seems that an ever
this, enabling more businesses to production may require automation to do smaller fraction of applicants will actually
automate more aspects of the operations it in a competitive way. get to meet the employees of
both in manufacturing and service the company.
industries. This will be important for many Logistics is a big growth area for
reasons including improving productivity, automation, and much of it is linked to rise Healthcare innovation
quality, reliability, but also to address in online purchasing mentioned above.
Healthcare is a final illustration of the
demographic and societal shifts. Automated ordering and warehousing is
step-change transition technology is
better able to cope with large swings in
bringing in our digital transformation.
China’s dramatic manufacturing expansion seasonal demand. Automating the ‘final
has been fuelled over the last three mile’ of the delivery chain is still a distant
As healthcare costs continue to rise often
decades by the steady flow of rural dream. In service industries, automated
well above the rate of inflation in many
migrants to urban centres, but the ebbing call centres and advisory bots are
countries, the provision of the service is
flow is driving up wages. Automation becoming a reality. A recent development
becoming ever more unaffordable to both
is addressing this cost challenge, while that has gained much ground during the
governments, businesses and individuals
also lowering business continuity risks. pandemic is the use of automation in the
in its present form. As we rediscovered
China is already one of the world’s largest hiring process of new employees. There
in the pandemic, necessity opens minds
investors in industrial robots, but its policy has been a surge in companies using
to new approaches and gives an urgency
of industrial upgrading requires ever more automated AI-based screening tools
to developments that may help alleviate
sophisticated levels of automation and provided by third parties, these include
the unpleasantness. There are a myriad
boosts domestic technologies related to online application automated scoring,
20of examples of technologies that have or loathe, but it is also the fact that there they receive an alert. This will require the
become particularly relevant during the are high costs associated with such patient to be connected to a network
pandemic from vaccine development, visit even for simple routine out-patient both for the ongoing monitoring and
mass screening, tracing apps to quick procedures. In addition, there are relatively the video call, a 5G network connect
diagnostic tests. high cross-infection risks with hospital will allow the client to be full mobile at
visits. Remote monitoring via sensors all times. The doctor may prescribe the
However, there are also some less obvious placed on the patient may often provide a patient medicines via a digital script or
technology-led developments, such as suitable alternative, for example, a patient prescription that is dispensed directly by
telemedicine. It appeared as a niche, with cardiovascular conditions can now an online dispensary service that send the
poor alternative to going to a surgery for easily have their heart rate, blood pressure medicines from its automated warehouse
a “proper” consultation. However, online and other vital indicators monitored to the patient. The patient will pay for
appointments are sufficient and efficient remotely. The other big advantage is that the consultation and medicine from their
for both the doctors and patients. It monitoring can be done continuously digital wallet. This scenario is already an
avoids unnecessary traveling to the with appropriate pre-set alerts sent to the existing reality today that is life changing
surgery for the patient and the inevitable doctor and patient should their condition for many patients especially in rural areas,
long delay as the doctor is behind need attention. but also brings better patient outcomes
schedule. The pandemic has repositioned and improves productivity and lowers
telemedicine as a viable alternative for The four areas that we chose to highlight costs. Because of the inter-relatedness
many consultations. are not isolated but are to some extent of these innovations, they reinforce each
inter-related. For the remote monitor other, push further innovation and
Another related example is visiting example above, the doctor may first increase the profitability of the innovations
hospitals, something most people dread consult the patient by video call when for investors.
Investment Outlook First Quarter 2021 213. Recovering in a Low Yield World
Cyclical improvement and a risk-on during this period, means that the trend is also means that central bank policy will
tone in markets have driven safe largely structural in nature. need to remain very accommodative.
haven bond yields higher in recent Governments will probably only be able
weeks. But our view is that yield levels The great moderation: structurally low to grow out of their debt if bond yields
will remain structurally low, and that inflation. We believe inflation is structurally remain low for a very long time.
USD and EUR policy rates will remain capped by the impact of globalisation and
unchanged in 2021. The search for technology. The labour market is global, This is topical because deficits have risen
yield should thus continue, in bond and there is competition between workers significantly during the pandemic, and in
markets, through dividend stocks in developed and emerging markets. The the US, President-elect Biden has signalled
and REITs. The low yield environment online economy and automation help higher spending. But bond markets
also supports interest rate sensitive slow wage inflation, and global trade should not worry, as taxes may also pick
sectors, where we find interesting has increased competition between up, when the economy recovers, and a
opportunities. firms. The internet allows consumers to gridlock in Congress means that some of
shop around for the best price, reducing the administration’s spending plans may
What the bond bears worry about. consumer price inflation. It is true that not materialise.
When investors look at historical patterns, globalisation has peaked, but we think
the economic recovery we expect to see that price competition in labour markets, Moreover, we note that during the credit
in 2021 leads many to conclude that bond goods and services will remain very high, crisis, neither the higher debt, nor the
yields may drift higher. What if central and that trade barriers will only have a mild ample central bank liquidity led to higher
banks start to normalise policy, and would impact on inflation. Many companies who inflation. And even if inflation were to
a normalisation be driven by interest see some of their input costs rise, may pick up to 2%, the Fed policy would not
rate hikes, or by slower bond purchases be forced to absorb this in their margins immediately need to tighten, as it has
(leading to some kind of taper tantrum)? and not pass it on to consumers, hence adopted an average inflation target of 2%.
The bears will probably point to oil keeping CPI in check.
So what about credit ratings? In recent
prices in 2021 as there will be significant
Credible central bank policy in DM years, we have seen a number of credit
oil-price base effects, which may give
and EM: clear central bank mandates, rating downgrades and negative rating
the impression that inflation is starting to
improved communication and market outlook changes for G7 countries.
pick up. Indeed, if the Brent crude oil price
guidance have helped reduce the markets’ However, this did not lead to higher bond
were to remain at $45/bbl throughout the
fears of inflation. Increased market yields or higher central bank policy rates.
year, it would have a deflationary effect
confidence lowers the real rate investors This reflects our view that there is no
early in the year (when it is compared to
demand on cash and government bonds. major debt sustainability issue in countries
the $70/bbl level from January 2020) but
like the US, Germany and the UK.
become reflationary by the Spring (when
Global ageing: ageing populations tend
it will be compared to the $22/bbl level of
March 2020).
to save more for their retirement, and
Investing in a low yield
the savings surplus from countries like
These are valid questions, but they overly China is being invested in financial assets, environment
emphasize the cyclical and short term including bonds. As people age, they
often prefer the more predictable cash In the low global yield environment,
aspects, and largely ignore the structural
flows of bond markets when compared to investors will need to pull out all the stops
factors. It is because of the structural
equity markets. to find enough income, while balancing
factors that we stick to our flat Fed and
the increased potential yield when going
ECB policy rate forecasts, and our view
High government debt and low yields further down the credit spectrum, against
that safe haven bond yields should
go hand in hand. The Japanese the increased risks. An important part
continue to trade in a range.
experience shows that high government of the strategy is to not hold large cash
debt effectively reduces future growth balances, as they present an opportunity
Low for much longer: the cost. Our top themes are as follows:
as it limits governments’ scope for
structural story
discretionary spending. Lower trend
US Treasury yields have been drifting growth in turn tends to lead to low policy EM debt – carry in a low yield
down since the early 1980s. The fact that rates and government bond yields. environment: We believe that EM
this trend has remained in place, in spite of Sovereign debt growth around the world corporate bonds in HC continue to offer a
the ups and downs of the economic cycle good risk/return trade-off.
22Our focus is on China, on Healthcare, The fall in safe haven government bond yields is a long term structural
Media and Telecommunication and phenomenon.
Financial companies, as well as Chinese
18% US 10- year Treasury yield
Property Developers.
16%
DM financials credit: The DM Financials
14%
sector’s regime change since the Global
Financial Crisis has caused banks to build 12%
up significant capital buffers. COVID 10%
will undoubtedly put the sector’s strong
8%
fundamental footing to the test, but
central bank liquidity and targeted fiscal 6%
measures help. Our focus is on banks’ Tier
4%
2 bonds in USD and select Additional Tier
1 securities from banks with the highest 2%
quality fundamentals. 0%
5
0
5
0
5
0
5
0
5
0
5
0
Resilient income: Investors are looking
6
7
7
8
8
9
9
0
0
1
1
2
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
beyond the bond market and towards
equities to find sources of income. We Source: Bloomberg, HSBC Private Banking as at 9 December 2020. Past performance is not a reliable
indicator of future performance.
remain selective in dividend stocks but
believe that, some of the healthiest
companies may start to raise dividends
again. We also see opportunities in REITs
but again point to the need to be selective, Most countries have seen their debt piles rise since 1980, but global bond yields
with a focus on quality. have still fallen.
200 Canada France
A recovery boosted by low interest rates:
There are many signs that the low interest Germany Italy
180
rate environment is helping a number of Japan United Kingdom
sectors, and speeding up the recovery. United States
160
Automotives have seen good demand
in the US, and prices and optimism
140
have picked up in housing markets. Low
Net Debt as % of GDP
rates should support technology-related
120
stocks and avoid any sustained
underperformance of growth stocks.
100
Focus on quality: The low interest rate
80
environment is largely structural, but also
related to the uncertainty we have around
60
us. An improving cycle allows investors
to broaden their stock selection, but we
40
note that some ‘value’ stocks can be value
traps, i.e. companies with weak balance
20
sheets or outdated business models.
Quality stocks may not outperform the
0
index in 2021, but they should still provide 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024
a good risk/return tradeoff amid the Source: IMF World Economic Outlook, HSBC Private Banking as at 9 December 2020. Forecasts post 2019
uncertainty and volatility we expect. are subject to change.
Investment Outlook First Quarter 2021 23You can also read
