。 MULTI-ASSET ● GLOBAL25 January 20192PART I:Global direction 3Time to add risk 4Scaling up 5Asset class preferences 7PART II:HSBC key asset class views 8Fundamental background 9DM cross-asset views (for 1-month horizon) 10EM cross-asset views (for 1-month horizon) 12Recent publications 13Survey results: Top 10 risks 13Quantitative indicators 14Appendix 17Behaviour of bonds and equity volatility during equity uptrend phases 17Disclosure appendix 18Disclaimer 22Contents 3MULTI-ASSET ● GLOBAL25 January 2019 In the past few months, we’ve cautioned against overly bullish sentiment and weaker-than- expected Q1 US macro data (Unstable sentiment, 14 Dec 2018). We were concerned about thesustained rise in cross-asset volatility (see Chart 17 and The end of easy, 14 Nov 2018) as wellas the upward trend of the HSBC Risk on - Risk off indicator, which measures the strength ofcross-asset correlation (see page 15). For example, one year realised US equity volatility hasmore than tripled over 12 months (Chart 1). Therefore, to maintain a constant risk-return ratio,investors need to have a substantially higher expected return than a year ago.1. MSCI USA 1Y rolling volatility (%)2. HSBC Sentiment Index0 5 10 15 20 25 20112013201520172019 MSCI ACWI 1Y rolling volatility (%, annualised) -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 13141516171819 HSBC sentiment index Sentiment bullish Sentiment bearish Source:Bloomberg, HSBCSource:Bloomberg, HSBCHowever, we notice several important evolutions. Our sentiment indicators showed signs ofcapitulation at the end of 2018 (see Multi-Asset Bulletin, page 9, 21 Jan 2019). The dramaticmoves in November and December, and the changing tone of the Fed might signal we are closeto the end of the transition phase which started in February last year. In the note from last May(Transitioning, 10 May 2018) we show that the sharp increase in cross-asset volatility andcorrelation during the February sell-off marked a tipping point for markets and the beginning of atransitory phase. Our proprietary indicators are also showing positive signals. Equity valuationshave come down and HSBC Global Equity Strategists expect equities to continue to rebound in2019 (see Global Equities in 2019, December 2018). In this section, we highlight why we believe multi-asset investors should increase risk exposurevia equities, but in a gradual way to benefit from markets’ volatility as political risks andeconomic uncertainty should drive investor sentiment in the first quarter.Part I: Global direction Our proprietary indicators are showing positive signs, andequity valuations have become more attractiveMulti-asset investors should add risk via equities… …but in a gradual way as volatility should remain high MULTI-ASSET ● GLOBAL25 January 20194Time to add riskOur proprietary indicators are supportive for risk assetsOur indicators currently provide mixed but improving signals. For example, sentiment andpositioning no longer flash extreme bearishness. Yet, most of them like HSBC’s Equity SentimentIndex still provide a buy signal. Additionally, our surprise diffusion indicators are still low but appearto be bottoming (charts 3 & 4), which gives us a positive signal for risk assets. This highlights thatrisk exposure should be added gradually as these positive signals are confirmed.3. Surprise diffusion indicators low…4. … but shorter-term ones bottoming Source: Bloomberg, HSBCSource: Bloomberg, HSBCRe-pricing of the Fed rate expectationThe main theme of recent weeks has been the re-pricing of the Fed rate expectations (Chart 5).Fed Chair Jay Powell’s recent comments indicate that it has taken into account market concernsabout financial stability1 at this stage of cycle. Equity markets valuations have become moreattractive, and the bond market is pricing in a pause from the Fed. Our economists now only expectone more Fed hike in 2019. We believe this is an important factor as expectations of a “Fed put”supports investor sentiment.5. Re-pricing of Fed rate expectationsSource: Bloomberg, HSBCEquity valuations are more attractiveThe second important adjustment is on valuations. Economic growth is slowing but notcollapsing (see Global Economics Q1 2019), and our equity strategists believe the backdrop issupportive for corporate earnings. Equity valuations have come down and negative earningsgrowth through 2020 is now priced in the US. They also believe that China risk is priced in, as______________________________________1 See for example Peek J., Rosengren E., Tootell, G., Does Fed Policy Reveal a Ternary Mandate, Federal Reserve Bankof Boston Working Papers, 2016.0 25 50 75 100 Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19 Diffusion index HSBC Activity Surprises (60-day change) Diffusion index HSBC Activity Surprises (40-day change) 0 25 50 75 100 Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19 Diffusion index HSBC Activity Surprises (60-day change) Diffusion index HSBC Activity Surprises (40-day change) -30 -20 -10 0 10 20 30 40 50 60 Jan 18Apr 18Jul 18Oct 18Jan 19 Spread Jan19-Dec19 Fed funds futures (bp)Spread Dec19-Dec20 Fed funds futures (bp) Hikes Cuts 。。。。。。