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 Internet Explorer, Google Chrome, Apple 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

Five insights in five minutes

Five in Five: US rates and growth, China tech wobble, ETF milestone, Natural capital, Sterling outlook
14 May 2021

    US rates and growth

    Our macro team works deep into the night on its forecasts for US output. With markets obsessing about Wednesday’s bumper inflation number and ten year treasuries near 1.7 per cent again, it pays to remember why old fashioned growth also matters so much. At stake is the direction of real interest rates. Right now they’re negative in America because although nominal rates have drifted upwards, inflation is higher still. You can go blue trying to predict the latter. In their latest report, our strategists offer intriguing US scenarios based on what happened in the 1950s and 60s. Ultimately, standard economic textbooks say that short-term real interest rates are positively related to the growth rate of potential output. Basically, the price of money goes up as investment demand rises and savings fall – and vice versa. Of course, open economies muddy this relationship and other factors can overwhelm it too. As you can see in our chart, however, US real yields have tracked output growth closely over the past 35 years.

    Themes: global fixed income and equities, all asset prices

    US rates and growth 

    Chinese tech wobble

    China’s regulatory body has approved the launches of seven onshore ETFs that will follow the Hang Seng Tech index. A much needed piece of good news for Hong Kong’s newly minted benchmark, which is down one-tenth year to date. Technology stocks have struggled globally over recent weeks. They are particularly sensitive to the outlook for inflation and interest rates as the bulk of their valuations reflect cashflows discounted decades into the future. In addition, Chinese tech is also facing some uncertainty as Beijing aims to regulate the sector more firmly. But don’t let these issues distract you from what matters: Hang Seng’s tech index gives you exposure to the biggest, fastest growing technology plays on earth for a third of the price-to-book ratio of the Nasdaq. The Chinese e-commerce market, for example, is now three times larger than America’s and shows no sign of slowing down – actually it’s accelerating.

    Themes: China equities, Asia equities, technology

    Chinese tech wobble 

    ETF milestone

    Sometime around now, perhaps as you are reading this sentence, global assets in exchange traded funds will pass through the nine trillion-dollar mark. A record USD460 billion has already flowed into ETFs so far this year and at this rate we will be measuring the sector in 14 digit numbers by Christmas. Don’t conclude for a moment that ETFs are mature. They still only have a seven per cent share of Europe’s regulated assets, 11 per cent of Asia’s and a fifth of America’s. That’s less than 15 per cent of world-wide funds under management. Which raises an interesting question. Given the remaining up-side, why isn’t there an ‘ETF’ ETF – geared to the success of the product itself? Five in Five would buy that in spades. The closest funds available are financial services or capital markets focused, which include beneficiaries of the ETF boom. Unsurprisingly, most of these have almost doubled over the past year.

    Themes: ETFs, thematic investing

    ETF milestone 

    Natural capital

    As can be seen in our chart, the low-tech S&P Global Timber and Forestry index has left the Nasdaq deep in the woods over the past year as lumber prices have tripled since 2019. A post-pandemic boom in housing tells the demand side of the story. However, supply limitations in North America, which dominates global production of wood products, include longer term issues related to climate change. For example, a two decades long outbreak of bark-eating beetles has ravaged forests across the west of the continent, affecting 27 million hectares of woodland – an area almost the size of Germany. Warmer winters create thriving conditions for beetle buffets, while hotter, dryer summers have worsened the impact by making trees more vulnerable, as well as magnifying forest fires. So what does this mean for clients? There is a clear need for greater investment into nature’s assets, or natural capital. Opportunities abound for both returns and solutions that protect valuable resources.

    Themes: Climate change, natural capital, alternative assets

    Natural capital 

    Sterling outlook

    Just as Britain is finally ushering in a summer, the pound has also warmed itself nicely this week against major currencies. Sterling is up versus the euro by around one per cent, marking the highest trading level in a month, and has enjoyed a 1.2 per cent rise on Monday against greenbacks. As ever, currency experts have attributed this outperformance to a slew of reasons – though surprisingly not the weather. Most cite a reduced risk of Scottish independence after the failure of the SNP to secure a full majority in recent elections, as well as the success of Conservative candidates in parallel local voting. A crystal ball is yet to be manufactured for exchange rates, so until then we’ll settle with purchasing power parity and bond yield differentials, both which suggest the pound trading at a slight premium, as per the chart below. That said, analysts reckon lockdown easing and the path to recovery leaves room for future pound gains.

    Themes: pound sterling, UK

     Sterling outlook 


    Important information

    For Professional Clients and intermediaries within countries and territories set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.

    The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.

    The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

    We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.

    HSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. (HSBC Group). HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities:

    • In Argentina by HSBC Global Asset Management Argentina S.A., Sociedad Gerente de Fondos Comunes de Inversión, Agente de administración de productos de inversión colectiva de FCI N°1;
    • In Australia, this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL 232595, for HSBC Global Asset Management (Hong Kong) Limited ARBN 132 834 149 and HSBC Global Asset Management (UK) Limited ARBN 633 929 718. This document is for institutional investors only, and is not available for distribution to retail clients (as defined under the Corporations Act). HSBC Global Asset Management (Hong Kong) Limited and HSBC Global Asset Management (UK) Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services they provide. HSBC Global Asset Management (Hong Kong) Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws, which differ from Australian laws. HSBC Global Asset Management (UK) Limited is regulated by the Financial Conduct Authority of the United Kingdom and, for the avoidance of doubt, includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013, under the laws of the United Kingdom, which differ from Australian laws.
    • in Austria by HSBC Global Asset Management (Österreich) GmbH which is regulated by the Financial Market Supervision in Austria (FMA);
    • in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 37 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;
    • in Canada by HSBC Global Asset Management (Canada) Limited which provides its services as a dealer in all provinces of Canada except Prince Edward Island and also provides services in Northwest Territories. HSBC Global Asset Management (Canada) Limited provides its services as an advisor in all provinces of Canada except Prince Edward Island;
    • in Chile: Operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilean state. Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;
    • in Colombia: HSBC Bank USA NA has an authorized representative by the Superintendencia Financiera de Colombia (SFC) whereby its activities conform to the General Legal Financial System. SFC has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;
    • in Finland, Norway, Denmark and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Stockholm branch of HSBC Global Asset Management (France), regulated by the Swedish Financial Supervisory Authority (Finansinspektionen);
    • in France, Belgium, Netherlands, Luxembourg, Portugal, Greece by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026);
    • in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin;
    • in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission;
    • in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India;
    • in Italy and Spain by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Italian and Spanish branches of HSBC Global Asset Management (France), regulated respectively by Banca d’Italia and Commissione Nazionale per le Società e la Borsa (Consob) in Italy, and the Comisión Nacional del Mercado de Valores (CNMV) in Spain;
    • in Mexico by HSBC Global Asset Management (Mexico), SA de CV, Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC which is regulated by Comisión Nacional Bancaria y de Valores;
    • in the United Arab Emirates, Qatar, Bahrain & Kuwait by HSBC Bank Middle East Limited which are regulated by relevant local Central Banks for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority.
    • in Oman by HSBC Bank Oman S.A.O.G regulated by Central Bank of Oman and Capital Market Authority of Oman;
    • in Peru: HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Seguros in Perú whereby its activities conform to the General Legal Financial System - Law No. 26702. Funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Perú and is not for public distribution;
    • in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore;
    • in Switzerland by HSBC Global Asset Management (Switzerland) AG whose activities are regulated in Switzerland and which activities are, where applicable, duly authorised by the Swiss Financial Market Supervisory Authority. Intended exclusively towards qualified investors in the meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA);
    • in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan);
    • in the UK by HSBC Global Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority;
    • and in the US by HSBC Global Asset Management (USA) Inc. which is an investment adviser registered with the US Securities and Exchange Commission.

    INVESTMENT PRODUCTS:

    • Are not a deposit or other obligation of the bank or any of its affiliates;
    • Not FDIC insured or insured by any federal government agency of the United States;
    • Not guaranteed by the bank or any of its affiliates; and
    • Are subject to investment risk, including possible loss of principal invested.

    Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided as an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively 'the MSCI Parties') expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)

    Copyright © HSBC Global Asset Management Limited 2021. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Global Asset Management Limited.