HSBC says ‘cash is king’
Despite some recovery in the world's equity markets following a turbulent start to the year, strategists at HSBC Holdings Plc are urging caution when attempting to buy a dip in stocks. "Cash is king in a world with [debt] overhangs," the team, led by Global Head of Asset Allocation Fredrik Nerbrand, said in a note published Friday.
"While markets have stabilized following the January sell-off, we find limited reasons to add to equity risk. We prefer to have allocations to high-yield and emerging market debt where risk premia are more appealing."
Here are two of the big factors they cite for their continued caution: A slowdown in corporate earnings. There's been a great deal of talk about a profit recession over the past few months and HSBC doesn't think the conversation is going to end anytime soon.
Without more of a reason to be optimistic about earnings, there's little cause to be bullish on stocks. "Unless corporate earnings start to turn up, there is very limited upside for economically sensitive assets such as equities," HSBC writes.
While valuations have certainly become a bit more attractive over the course of the downturn, HSBC points out that it is still hard to snap up market bargains.
However, the team is skeptical in how much of a factor valuations have been or will be in the future: "The current drawdown is hardly spectacular. Nor were valuations a reason for the sell-off or a reason why markets should stabilize at this point."