HSBC private banking investment outlook: New realities and opportunities

MUSCAT: There will likely be an economic slowdown, but no recession, HSBC Private Banking forecasts in its Investment Outlook for the fourth quarter of 2019, called ‘ New realities and new opportunities’.

Manufacturing and investment spending will likely remain weak but consumption has been relatively resilient and accounts for a much larger share than manufacturing in most economies.

As we head into the last quarter of the year, HSBC Private Banking says it is important to stay invested and find the right balance in terms of risk and portfolio allocation.

Investment strategy

In equities, HSBC Private Banking adopts a mild risk-off stance with a preference for defensive sectors over cyclical. It favours relatively closed economies, such as the US, over manufacturing-based economies. Structurally, it is bullish on Asia, but given the short term uncertainties, we currently adopt a neutral stance on emerging markets Asia, with a preference for domestically-focused economies, such as Indonesia and India. In China, quality Chinese banks, selective infrastructure and building materials companies should benefit from local stimulus measures.

Managing elevated uncertainty

Amid market volatility and policy uncertainty on economic growth and market risk appetite, fiscal stimulus is needed, but that prospect remains uncertain, according to HSBC Private Banking.

“In this environment diversification across asset classes and regions is particularly relevant, and selecting stocks and bonds with a focus on quality and resilience is important,” says Willem Sels, Chief Market Strategist, HSBC Private Banking.

New realities, opportunities

“Focusing on long-term trends can give direction to portfolio strategy, allowing investors to look through some of the noise, and to stay invested. This is generally better than sitting on low-yielding cash,” says Willem Sels.

The build-up of high debt loads during the past decade, ageing populations, the Chinese savings surplus and the deflationary effects of the global labour market and e-commerce mean that interest rates are likely to remain low for a long time. Therefore, in fixed income, HSBC Private Banking focuses on carrying strategies in investment grade, and emerging market local and hard currency bonds.

Challenges and opportunities in technology

Another important trend is that of technological change. “In almost every sector, winning companies will largely be those who can effectively use technology,” says Willem Sels. HSBC Private Banking sees opportunities for investors in electric vehicles, battery innovation and the electric grid as well as in health technology, in particular where it enables ageing populations and wealthier emerging market households to get easier, better or cheaper access to healthcare.

For the MENA region, the combination of reform agendas including climate and sustainable development goals and diversification plans in general, have the potential to lift growth even in the face of a slowing external backdrop. Our 2020 growth forecast is positive for most countries in the region. However, political uncertainties and slow progress on reform will act as headwinds.