MULTI-ASSET ● GLOBAL
26 November 2018Multi-Asset Spotlight 3
Multi-Asset Performance 4
Correlation 6
Volatility 8
Sentiment / Flows / Positioning 9
Macro 11
FX 12
Fixed income (rates) 13
Fixed income (credit) 14
Equities 15
Commodities 16
Appendix 17
Key forecasts & recommendations 19
Disclosure appendix 20
Disclaimer 24
ContentsMULTI-ASSET ● GLOBAL
26 November 2018
Multi-Asset Spotlight
Why we are bearish on global corporate credit vs DM sovereigns1
Our fixed income strategists and we have been bearish on corporate credit (particularly EUR
credit) and much more constructive on DM sovereigns for quite some time1. We see little reason
to change this view from a multi-asset perspective in the coming months. If anything we think
the reasons for becoming even more bearish on credit are mounting.
1. We have seen a significant deterioration in fundamentals lately. For example our US credit
colleagues recently noted that the average rating in the USD IG universe has deteriorated
sharply (chart 1, US corporate leverage: Viewer discretion advised, 19 Nov 2018). They are also
worried about the weakening of covenant quality and the substantial rise in US corporate
leverage (chart 2). Finally, we would add that the recent negative surprises in US economic data
and the apparent rolling over of our macro cycle indicators are a sign of further trouble for credit.
1. US IG credit index quality deteriorated2. US IG leverage is soaring
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
2. Given that we are already at a fairly extended stage of the Fed’s rate hike cycle, we believe
it’s likely that volatility of risk assets such as equities will see a more sustained rise in 2019
(chart 3). Historically if volatility has started to rise, global investment-grade credit has
stopped outperforming vs sovereigns (chart 4). So if we are correct in our assessment it will
be another tough year for global corporate credit, at least relative to DM sovereigns.
3. We believe high yield is especially vulnerable given its greater sensitivity to equity vol. If
equity vol were to rise then HY spreads would face acute widening pressures, relative to IG.
3. Equity vol set to rise further4. When vol rises, credit does poorly
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
______________________________________ 1
For global corporate credit we use the Bloomberg Barclays Globall Agg Corporate Index, for DM
sovereigns we use the S&P Global Developed Sovereign Bond Index.
0%
20%
40%
60%
80%
100%
1988199319982003200820132018
BBBAAAAAA49%
37%
Weight of...
1.5
1.7
1.9
2.1
2.3
2.5
2.7
200320062009201220152018
USD IG net debt to EBITDA (x)
15-year average
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.0020
30
40
50
60
70
19921996200020042008201220162020
VIX (4W rolling average)
Fed funds rate (2Y lead, RHS)
%1030
40
50
6080
90
100
110
120
130
140
19881992199620002004200820122016
VIX
Re
lati
ve
per
for
ma
nce
Relative performance US IG vs USTsVIX (3mma)
MULTI-ASSET ● GLOBAL
26 November 2018Multi-Asset Performance
Weaker-than-expected PMIs in the Eurozone and surprisingly negative US durable goods
orders sparked concerns about global growth once again last week. Consequently risk assets
struggled, with oil, DM equities and EM equities performing worst.
Yet we note that EM equities again outperformed their DM peers last week. This was mostly
due to EMEA equities – despite lower oil prices.
Credit continued to perform poorly with only USD IG holding up relatively well last week. We
hold on to our belief that there is still more pain to come in the coming months.
1. Multi-Asset (USD, TR, %)2. Relative Asset Class Performance (12M)
-30-25-20-15-10-505
Oil (spot)
DM equities
EM equities
Inflation
EMXD
HY
Gold
Credit
EMLC
DM govt. bonds1W1M
80
90
100
110
120
Oct-17Dec-17Feb-18Apr-18Jun-18Aug-18Oct-18
Tot
al R
etur
ns I
nde
xed
at 1
00
EM vs. DM equityEMXD vs DM sov.
Gold vs. DM sov.DM equity vs. credit
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
3. Equity Regions (local currency, TR, %)4. Relative Equity Performance (12M)
-6-4-20246
EM LatAm
US
Eurozone
EM Asia
Pacific ex Japan
UK
EM EMEA
Japan1W1M
80
90
100
110
Oct-17Jan-18Apr-18Jul-18Oct-18
Tot
al R
etu
rns
ind
exe
d a
t 10EM ex Asia vs EMDM ex US vs DMEurozone vs USJapan vs Eurozone
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
5. Fixed Income (local currency, TR, %)6. Relative Fixed Income Performance (12M)
-2.0-1.5-1.0-0.50.00.51.01.5
EUR HY
USD HY
EUR IG
Asia
USD IG
UST
JGB
EZ core
UKT
EZ non-core1W1M
90
100
110
120
94
96
98
100
102
Oct-17Jan-18Apr-18Jul-18Oct-18T
ota
l Re
tur
ns
Ind
exe
d a
t 10UST vs EZ core (LHS)USD IG vs USD HY (LHS)
EUR IG vs EUR HY (LHS)EZ core vs EZ non-core (RHS)
Source: Bloomberg, HSBCSource: Bloomberg, HSBC。