Outlook for H2 2024 investment

>> Top trend of Asia in the new world order

Risk-on investment strategy

For the next six months, HSBC GPB adopts a risk-on investment strategy with zero allocation to cash and overweight on global equities, US Treasuries, and global investment grade bonds. The US market remains its largest overweight within global equities, and it stays overweight on Asian equities. It holds a bullish view on the US dollar due to support of high real yield, divergent pace of central bank easing and safe-haven demand driven by geopolitical uncertainty.

Cheuk Wan Fan, Chief Investment Officer, Asia, Global Private Banking and Wealth, HSBC, says: “We are optimistic about the investment outlook for the second half of the year and continue to focus on putting cash to work in global equities and bonds that we maintain our overweight allocation. We believe we have seen both the peak in bond yields and the bottom of the global economic cycle. This means portfolio performance should be powered by two engines: attractive bond yields and broadening earnings growth.”

“The European Central Bank and Bank of Canada have already started their rate cutting cycle. We expect the Federal Reserve will start cutting rates by 25 basis points in September and will deliver three more 25 basis points rate cuts in 2025. The Fed’s new dot plot projects the policy rate will drop to 4.125% by the end of 2025. There is little incentive to remain in cash and we advise investors to lock in current attractive bond yields at near decade-high levels,” highlights Fan. 

“Adding to income opportunities, we look for earnings growth, which is well supported by the broadening global cyclical tailwind and easing cost pressures. US domestic demand is resilient, while the Eurozone and UK economies are bottoming out. We forecast global and US GDP growth to stay solid this year at 2.6% and 2.4%, respectively. China’s latest property boosting measures are expected to stabilise GDP growth at 4.9% this year. India’s economic activity continues to surprise to the upside on multiple fronts, supporting our forecast 2024 GDP growth of 7.3%. So far, the global equity rally has been led by Big Tech. We have been broadening our geographical and sector exposure in our global equity portfolios to widen the opportunity set and find attractive stocks at reasonable valuations,” adds Fan. 

Four investment priorities

HSBC GPB gave four investment priorities for H2 2024.

First, broadening equity exposure across geographies and sectors. “The improvement of economic data should support companies’ earnings growth across more geographies and sectors. By broadening the exposure, equity investors capture more opportunities and diversify, while addressing concerns about the rich valuations in the tech sector,” notes Fan.

Second, putting cash to work in bonds and multi-asset strategies. “Bond yields are currently near decade-high levels, and an allocation to bonds and multi-asset strategies can help generate a stable income stream, while providing portfolio diversification to mitigate against tail risk events,” says Fan.

Third, tapping into private assets and infrastructure. “Private markets have delivered outperformance versus the public markets in the long term. As more companies are staying private for longer, the depth, diversity, liquidity and ways to access the market continue to grow. Infrastructure investments offer compelling structural growth opportunities on the back of digitalisation, decarbonization and re-onshoring,” highlights Fan.

Fourth, unlocking the best opportunities in Asia. “Asia remains the most important growth engine of the global economy with projected 4.7% GDP growth and 23% earnings growth in 2024, well above the global peers. We find promising and diverse opportunities in the region on the back of attractive valuations and strong earnings growth. We hold overweight view on equities in Japan, India, and South Korea, where we see the best opportunities to tap into Asia’s structural growth themes. We stay neutral on Hong Kong and mainland China equities with end-2024 target for the Hang Seng Index at 19,230. We expect China’s five supportive measures will continue to attract southbound fund inflows into Hong Kong, which should help improve the liquidity conditions of the Hong Kong stock market and bring tactical opportunities for undervalued quality stocks,” adds Fan.

James Cheo, Chief Investment Officer for Southeast Asia and India at HSBC Global Private Banking and Wealth, expects China’s GDP growth to go sideways in the second half of the year, as it will take longer for the property sector to digest the massive unsold housing inventory. More supportive policies are needed to stabilise domestic demand by reviving business confidence and consumer sentiment to mitigate deflation risk.

 >> Shifts in investment flows for export-oriented industries

“After the recent rally, we think the Hang Seng Index’s valuation remains attractive. We stay selective and prefer undervalued quality stocks in the Chinese service consumption and high-end manufacturing sectors. We favour quality SOEs paying high dividends. We continue to focus on select oversold, high-quality Hong Kong developers and REITs with strong balance sheets and a competitive position. We also prefer the Hong Kong insurance, telecom and utility sectors for their growth resilience and the benefit from expected Fed interest rate cuts,” adds Cheo.

Vietnam outlook

Vietnam’s economy is poised to be strong for the rest of 2024. Vietnam continues to be on the path of recovery, driven by the turnaround in the global electronics cycle. As a result, industry activity as measured by purchasing manager’s index, continued to show that manufacturing is expanding. Vietnam’s electronic exports are doing very well. Concurrently, the pipeline of Foreign Direct Investments looks to be healthy due to the attractiveness of Vietnam as an investment destination.  While domestic spending is mixed, tourism is staging a comeback and is likely to reach the target of 17-18 million visitors for this year. 

Inflation remains sticky and near the 4.5% ceiling of the State Bank of Vietnam (SBV). The delay in the expectation of the Fed rate cut, has created some near-term dollar strength and volatility for the Vietnamese Dong. Depending on how global central banks determine their interest rate policies, the SBV is likely to be cautious with its own rate policy. 

On equity markets, Vietnamese stock market has been one of the better performing markets in Asia from a year-to-date perspective. “Equity valuation is still undemanding. Corporate earnings remain resilient recovering from the trough in 2023. If earnings continue to be strong, the equity market uptrend can be sustained,” says Cheo.