MULTI-ASSET ● GLOBAL
19 November 2018Multi-Asset Spotlight 3
Multi-Asset Trade Ideas 4
Multi-Asset Performance 5
Correlation 7
Volatility 9
Sentiment/Flows/Positioning 10
Macro 12
FX 13
Fixed income (rates) 14
Fixed income (credit) 15
Equities 16
Commodities 17
Appendix 18
Forecast Tables 20
Disclosure appendix 21
Disclaimer 25
ContentsMULTI-ASSET ● GLOBAL
19 November 2018
Multi-Asset Spotlight
EMXD with catch-up potential vs USD HY
We are positioned neutral on EM external debt (EMXD) and USD HY on a six-month horizon but
we think that on a shorter-term perspective there is catch-up potential for EMXD on a relative
basis. In normalised terms1 USD HY still trades almost one standard deviation tight – despite
the sell-off last week. By contrast, EMXD spreads trade more than one standard deviation wide.
We see various reasons for both to converge.
1. An oil price recovery would benefit EMXD more than USD HY. Our Oil & Gas equity
team thinks bearishness on oil prices is overdone (Bearishness overdone as OPEC
defends price, 14 November 2018). If we see a short-term rebound in oil prices we believe
there is more catch-up potential for EMXD than for USD HY. During the recent sell-off in the
oil price, USD HY energy issuers have already outperformed vs what their correlation to oil
would suggest (Chart 2). So if oil prices were to rebound strongly we think there is more
potential for EMXD to benefit compared to USD HY.
2. Fears of a full-blown EM crisis seem overdone, in our view. Our EM strategists have
shown that it was predominantly high-yielders where contagion fears were spreading the
most. However, even during the height of this summer’s EM sell-off, contagion fears were
limited among low-yielders (Contagion fears, efficient frontiers, 18 September 2018).
3. Disinflationary forces should accelerate in the coming months from this latest drop
in oil prices. This should support DM sovereigns through lower break-evens. In such a
scenario, USD HY is prone to underperform vs EMXD on a total return basis, due to its
much shorter duration. Additionally, a cooling inflation picture – particularly in the US –
might take some steam out of concerns about the Fed overshooting. Again, this should be
particularly beneficial for EMXD, rather than USD HY.
4. Outflows from foreign investors in EMXD have remained relatively contained in
recent weeks. Still, EMXD declined significantly. By historical standards this seems hard to
sustain. Given our rates strategists’ view of lower UST yields, foreign investor flows might
recover further – and performance would follow suit.
1. USD HY vs EMXD – as good as it gets2. Recent oil price decline vs oil proxies
Source: Bloomberg, HSBCNote: performance is vs USD for FX and relative performance vs overall market index for credit and equity.
Source: MSCI, Bloomberg, HSBC
______________________________________
1 Normalised spreads since January 2010.
-2
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EMXDUSD HYnormalised spreads
NOK
RUB
CAD
COP
S&P Energy
Stoxx 600 Energy
MSCI World Energy
MSCI EM Energy
USD HY Energy
USD IG Energy
EMXD
TIPS
-10
-8
-6
-4
-22
0.20.30.40.50.60.7
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5Ycorrelation vs oil
MULTI-ASSET ● GLOBAL
19 November 2018Multi-Asset Trade Ideas
DM rates trade ideas
CountryInstrument Rationale and risks Link to the report Entry (date) Target Stop Current PnL
US
US
Sell
Buy
TII0.75 7/28
T2.875 8/28
Fall in yields to take BEs much lower.
We expect headline inflation in the US
to fall and carry to turn negative. Risks:
A strong increase in energy prices.
DM Rates Ideas: Sell
US break-evens
31 Aug 2018
212bp
(30 Aug 18)
195bp 225bp 203bp 9bp
Portugal
Germany
Sell
Buy
PGB 2.125% 10/28
DBR 0.25% 8/28
Risk asset weakness to continue.
Risks: Sudden Italy resolution; global
risks rally
DM Rates Ideas:
Shelter from the
storm
26 Oct 2018
154bp
(25 Oct 18)
190bp 135bp 161bp 7bp
Italy
Spain
Sell
Buy
BTPS 2.8% 12/28
SPGB 1.4% 07/28
Italy budget volatility, Spain cheap.
Risks: Rapid budget compromise
DM Rates Ideas:
Spread out
9 Nov 2018
173bp
(8 Nov 18)
210bp 155bp 186bp 13bp
Source: HSBC Fixed Income Strategy
EM rates trade ideas
CountryInstrument Rationale and risks Link to the report Entry (date) Target Stop Current PnL
China Buy 10yr CGB Slower economic growth and a
reduced pace of financial
deleveraging. Risks: currency
depreciation and higher US
rates.
EM Rates: Seeking
shelter
4 Sep 2018
3.86%
(14 March 18)
3.30% 3.80% 3.35% 0.51%
Poland Pay PLN 5Y IRS Inflation tail risk from power
prices. Risks: retail energy
price increase is subject to
discretionary regulator’s
decision
Poland Rates: Pay rates
on inflation tail risk
28 Sep 2018
2.53%
(29 Sep 2018)
3.00% 2.34% 2.50% -0.03%
Source: HSBC Fixed Income Strategy
Global equity weighting key recommendations
Country Blue-chip index Recommendation Q2 2018 Q3 2018 Link to the report
US MSCI US small cap Overweight 6.5% 3.8% Multi Asset Strategy: Learning Curves
EM MSCI Emerging markets Overweight -8.7% -2.0% Global Equity Quarterly: Extend and defend
Eurozone EUROSTOXX 50 Underweight 1.0% 0.1% Fundamental questions for Europe
Russia MSCI Russia Overweight -7.4% 3.7% GEMs Equity Strategy: Upgrading Russia to
overweight, downgrading Mexico to neutral
India MSCI India Underweight -1.0% -2.7% GEMs Equity Strategy: Upgrading Russia to
overweight, downgrading Mexico to neutral
Source: HSBC Global Equity Strategy。