Please upgrade your browser

We take your security very seriously. In order to protect you and our systems, we are making changes to all HSBC websites that means some of the oldest web browser versions will no longer be able to access these sites. Generally, the latest versions of a browser (like Edge, Chrome, Safari, etc.) and an operating system family (like Microsoft Windows, MacOS) have the most up-to-date security features.

If you are seeing this message, we have detected that you are using an older, unsupported browser.

See how to update your browser

Mid-year Outlook 2023 - Out of Sync

 

Xavier Baraton

 
Welcome to our House Views. This update comes at a very pivotal moment, as the Fed is finally taking a pause in the fastest hiking cycle since the 1980s. This rapid tightening of financial conditions inevitably caused a downturn in the credit cycle. We think that current macro and market conditions make the case for creative thinking around geographic and asset diversification.

Economic cycles are increasingly disconnected. Political cycles and a new ‘multi-polar world’ amplify this process. The economic outlook is uncertain and a new economic regime is coming into view. Investors need new rules to construct portfolios for this new environment.
Our central scenario is for a recession environment in western economies, and a difficult, choppy outlook for markets.

Out of Sync

Watch our senior investment team share their current thinking on the global economy and asset allocation opportunities, particularly in Asia and emerging markets, along with alternative asset classes, where they see value today

 

 

Watch the Mid-Year Webinar recording

Download the mid-year investment outlook

The title of our investment outlook is ‘Out of sync’. And the reason for that is to reflect that global economies along with fiscal and central bank policies are quite divergent at the moment. They are not in-sync.

We talk about the global economy, or the equity market. That’s not really the right approach in an out of sync world.

  • Western and emerging economies look out of sync, with the West remaining under pressure amid sticky inflation, higher interest rates and tighter lending
  • Emerging economies continue to benefit from lower inflation, China reopening and a weaker US dollar
  • Complex, divergent economics creates unsynchronised markets. This environment means that there are new opportunities for diversification and relative outperformance


 

Negative Watch
DM economies will be hit hard by the fastest tightening cycle since the 1980s. We expect a scenario like the early 1990s recession

 


 

Extend to Emerging Markets
EM looks very different, amid better growth, lower inflation, and lower valuations. Having been unloved, investors should extend EM exposure

 


 

Out of Sync
Complex, divergent economics creates unsynchronised markets. This environment means that there are new opportunities for diversification and relative out-performance

 

Click on the drop down below to read the key findings from the report

 

New rules for a new environment

Economic cycles are increasingly disconnected. Political cycles and a new ‘multi-polar world’ amplify this process. The economic outlook is uncertain and a new economic regime is coming into view. Investors need new rules to construct portfolios for this new environment.

In the past, many investors have relied on the 60/40 portfolio. But there is a big question about the future return profile of that allocation, and question marks about whether bonds still offer reliable diversification.

Where to look for new diversifiers

Alternatives – especially allocations to real assets – can play an important role for investors. And the diversification opportunity within emerging and frontier markets has never been better. We call this ‘intelligent diversification’. It means that investors can capture idiosyncratic stories.

In India, for instance, the structural, long-run story – revolving around productivity, digitisation and high-end manufacturing, the infrastructure push, and strong demographics – remains strongly intact. This creates interesting opportunities, especially in how we incorporate thematic exposures into portfolios.

Exploring the potential of thematic investing

As investors look for new approaches to portfolio construction and tools to improve performance, thematic investing such as in multi-asset funds has attracted increasing attention. While the potential benefit of thematic investment is clear, how, when and where to use it remains a subject of debate for asset allocators. We explore the creation of disciplined frameworks that can be used to build robust thematic allocations considering diversification, fundamentals and momentum.

 

Error message: There is an error for the controller HalfImagePromo and action Index. Please check the log for more information

Read our other Insights articles

Risk warning

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Any views and opinions expressed are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. We accept no liability for any failure to meet such forecast, projection or target.