MULTI-ASSET ● GLOBAL
14 November 2018PART I:
Global Direction pg 3
This first edition of Multi-Asset Direction outlines our house view on the macro
economic and financial market outlook, coupled with our tactical and strategic
macro multi-asset framework.
PART II:
Key Forecast Tables pg 10
Fundamental Background pg 11
DM Cross-Asset views pg 12
EM Cross-Asset views pg 14
Recent Publications pg 15
Multi-Asset Analysts’ Meeting pg 15
Macro Health Check pg 16
Quantitative Indicators pg 17
ContentsMULTI-ASSET ● GLOBAL
14 November 2018
Macro matters
The macro backdrop has historically been – and in all likelihood will remain – an important input
into investment decision-making (Chart 1). We believe that macro momentum is particularly
valuable to build strategic and tactical multi-asset strategies.
1. Equity outperformance – the best days are behind us
Source: HSBC, Bloomberg, Markit, Refinitiv Datastream
Our macro cycle indicators combine a series of lagging, coincident, and leading indicators in
one series. This serves to shape our strategic and medium term view. Our surprise diffusion
indicators gauge the breadth of HSBC’s activity surprise indices (see Surprise indices, 7
November 2018). They are therefore a relative measure of macroeconomic momentum and
guide our tactical short-term view – see pp. 5-8 for details.
The end of easy
Combining the results of our new framework with our economists’ outlook for a slower global
economy next year, we believe that 2019 will be challenging for risk assets – especially in the
context of higher cross-asset volatility. Performance differentiation between sovereign fixed
income and equities will likely decline. Investors will need to invest much more tactically and in
our view – this is probably the end of easy.
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50
45
48
51
54
57
200320062009201220152018
Global manufacturing PMIRelative performance global equities vs. sovereign bonds (TR, RHS)
Part I: Global Direction
We introduce our new macro-cycle and surprise diffusion
indicators
These indicators provide a framework for our strategic and
tactical multi-asset views
This is the end of easy: investors will need to invest much
more tactically next year
MULTI-ASSET ● GLOBAL
14 November 2018Investment implications
Year-end rally
The latest leg lower in global equities seems exaggerated relative to what PMIs suggest. Indeed
our macro cycle indicators are still at, or close to cycle-highs. However, from a short-term
perspective our surprise diffusion indicators recently stalled. In our view, this signals that a
broad-based year-end rally for risk assets is unlikely.
Consequently, we remain selective in equities on a tactical basis – recommending a barbell
strategy of US and EM at the regional level, with defensive sectors and quality style. We also stick
to our view of underweighting Europe.
In DM rates, we are strongly positive on US Treasuries. In Europe we are bullish EUR core, but
neutral EUR non-core. While we like ‘high quality’ duration, we see further downside for
breakevens. Overall we are negative on credit – our credit strategists’ long-held bearish view on
EUR and Asia credit is unchanged, but we are neutral USD credit. In EM we see more upside for
external than for local currency debt.
We stay bullish on the USD across the board, and see EUR-USD falling to 1.10 by end-2019.
GBP will continue to fluctuate depending on the progress and outcome of the Brexit negotiations.
Meanwhile USD-JPY may fall further on the JPY’s safe-haven allure as episodes of sharp market
swings and stronger risk-on/risk-off correlations are more likely. In EM FX, we expect the RMB to
gradually depreciate, forecasting USD-RMB at 7.10 for end-2019. Gold should find support from
declining real UST yields, EM demand, and higher cross-asset volatility.
2. HSBC asset class views (6-month horizon)
Source: HSBC --/-/ N / + / ++ define our relative preference according to the HSBC asset class view with ++ most bullish, N neutral and -- most negative.
- --N++ +
US
Eurozone core
Eurozone non-core
UK
Japan
USD IG
USD HY
EUR IG
EUR HY
Asia
US
Japan
Eurozone
UK
HC debt
LC debt
Equities
Commodities
GoldCo
mm
.
Asset class
Go
v.
bo
nd
s
Cr
ed
it
Eq
uit
ies
EM
Fixed Income Asset
Allocation: A bucket of cold
water 31 Oct 2018,
Currency Outlook: RORO
Playbook for FX 8 Nov 2018
EM FX Roadmap: A rebound
is never a love story 23 Oct
2018
Credit Telegram: The return
of credit risk 29 Oct 2018
Data Matters: RORO
resurgence 17 Oct 2018
Global Economics Quarterly:
Diverging Fortunes 1 Oct
2018,
Dicing with debt: Macro
Health Check special 8 Nov
2018
Brexit Strategies: What if it’s
‘no deal’ 10 Sept 2018。