HSBC Global Asset Management expects risk of recession to emerge in 2021 or later
HSBC Global Asset Management believes that the worries about the global economic recession are exaggerated, and that the risk of recession will only emerge from 2021 on or later. In terms of asset allocation, the bank places preference on equity, and will increase its allocation as appropriate, but will invest less in government bonds in developed countries.
Bill Maldonado, Asia-Pacific Chief Investment Officer and Global Chief Investment Officer (Equity) of HSBC Global Asset Management, believes that the current economic growth is returning to normalization, and the worries about the economic recession are exaggerated. In addition, as the inflation is low, and countries are expected to adopt looser monetary policies. Along with strong foundation of corporations, risk of global recession will only emerge in or after 2021. The bank believes that the trade war will weaken business sentiment, which will lead to a decline in import and export volume and corporate capital expenditure, potentially resulting in stagflation.
Maldonado said that current capital market in Asia and emerging markets is attractive in terms of valuation. Therefore, the bank will look up to equity. The bank is particularly optimistic for cyclical sectors, and believes the relevant shares are considered to be undervalued, as investors prefers defensive sectors such as telecommunications or pharmaceuticals, which makes the valuation of defensive sectors high. The bank will pay more attention into sectors such as finance, consumer discretionary and automotive. However, the real return of developed countries government bond is negative, which the bank will decrease its volume. He added, Hong Kong stocks have attractive valuations, fasting growing economy and strong corporate earnings, and expects Hong Kong stock will catch up with other Asian stock markets.
Alfred Mui, Head of Asian Credit of HSBC Global Asset Management, expects the Fed to cut interest rates by 100 bps by the end of 2020, and will starting doing so as soon as this month. For China, the government will open up the market and introduce liquidity management tools to avoid systemic defaults.