HSBC says ‘cash is king’

The Pak Banker - - FRONT PAGE -

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."

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