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Opportunities in a complex world

Our Portfolio Strategy

HSBC maintains a constructive outlook on risk assets, focusing on the US, emerging Asia, and Latin America equities markets while being underweight Europe. The portfolio strategy prioritizes (1) extending bond duration ahead of expected policy rate cuts, (2) broadening US equity exposure to benefit from an expected economic soft landing, (3) hedging tail risks through alternatives, multi-asset and volatility strategies, and (4) diversifying EM exposure into structural growth leaders.

Quality, resilience, and diversification are emphasized to navigate volatility. The strategic asset allocation is adjusted to increase allocation to developed market government bonds and reduce exposure to risky fixed income like high yield and EM debt. Cash remains underweight with valuations improved and US resilience expected to avoid recession.

Top Trends and Themes

The report identifies five top trends for 2024:

  1. Asia in the New World Order – Asia remains a major growth contributor led by new themes capturing structural opportunities from supply chain reshuffling, rising wealth/consumption, and the green transition.
  2. Disruptive Technologies – Areas like AI, robots, electric vehicles, aerospace showcase science fiction becoming reality with investment opportunities.
  3. Climate Action – Significant momentum is driving the transition across entire energy frameworks and the biodiversity/circular economy, though collaboration challenges remain.
  4. Evolving Society – Preferences around urbanization, healthcare innovation, and social empowerment are structurally changing and creating new industries.
  5. Investing Ahead of the First Fed Rate Cut – Positioning for an expected shift to rate cuts later in 2024 while focusing on quality and resilient assets.

Accompanying the trends are 16 high conviction investment themes aimed at capturing diverse sources of returns.

Equities

HSBC maintains an overweight position in US technology names and sectors levered to structural growth drivers. The economic resilience should also support more defensive, cheaper sectors and reindustrialization plays. Emerging Asia and Latin America equities are also favored over Europe given relative growth and valuation differentials. A quality and large cap style bias is held.

Fixed Income

Bond yields have risen substantially but credit spreads remain relatively tight, shifting relative value towards sovereign bonds. HSBC extends duration in developed market government bonds and prefers investment grade over high yield. Opportunities also exist in financial corporate bonds offering an attractive yield pickup.

Currencies and Commodities

The USD is expected to remain supported in the near-term but upside may stall in H2 2024. EM currencies with strong fundamentals like the BRL and INR are favored. Commodities are viewed neutrally without a major drag expected on FX in Q1, though oil spikes could impact risk sentiment.

Alternatives

Hedge funds prove their diversification benefits in volatile markets. Macro, equity market neutral, and multi-strategy/multi-PM managers are viewed positively given flexibility. Private markets, real estate, and private credit also provide portfolio diversification.