Amid prolonged market uncertainty, UHNWs and family office investors can find opportunities in a resilient US economy and through going ‘back to fundamentals’, according a new investment outlook for 2024 from HSBC Global Private Banking.
Meanwhile, investments in disruptive new technologies and emerging markets could feature as part of a broad strategy to manage volatility, the global private bank’s chief investment officer Willem Sels told Spear’s. ‘There are some risks, but the investment environment remains favourable,’ he said.
Following the publication of the private bank’s ‘Opportunities in a Complex World’ report, Sels said growth opportunities could be found through investing ahead of anticipated interest rate cuts by the Federal Reserve in 2024.
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Investments in Asian markets, as well as the growth of new tech industries — including generative AI, robotics, and new energy transportation — could also help UHNWs to navigate market complexity.
Global growth is still slow, with the bottom of the economic cycle expected either in Q4 2023 or Q1 2024, Sels explained.
Yet UHNWs could benefit from a diverse investment strategy including alternatives, US bonds and equities, and increasing exposure to emerging markets, he said.
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‘We hedge tail risks via alternatives, multi-asset and volatility strategies. A core allocation to private markets and multi-asset strategies can add diversification, while nimble hedge funds can take advantage of mispricing,’ Sels said. ‘And volatility strategies can generate income to stabilise portfolios’ total returns.’
US economy propped up by strong consumption and business investment
With an expectation that the Federal Reserve and other central banks are likely to ease interest rate policy next year, Sels suggested an investment strategy could include broadening exposure to US equities, and a focus on high-quality bonds.
‘We think that the Fed and other central banks are done with their rate hikes, which should remove that headwind, and even allow valuations to improve ahead of the rate cuts later in 2024,’ Sels said. ‘The headwind from interest rate hikes should ease and ultimately become a tailwind.
‘Yields have gone up — bonds are cheaper than before — and price-earnings ratios have come down over the last number of months, so equities are cheaper as well from a valuation perspective.’
The US economy has been buoyed by resilient consumption, with ‘resilient labour markets and falling inflation [continuing] to boost consumer spending,’ according to the investment outlook report.
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Meanwhile, a trend of increasing re-industrialisation and onshoring has led to a rise in manufacturing investment by North American companies. With lingering US-China trade tensions, many companies have looked to set up onshore operations to ‘de-risk’ their manufacturing and supply chains in an increasingly multipolar world.
Sels spoke of the importance of a ‘China plus one’ strategy for the US, following a post-Covid need to diversify supply chains. This included both onshoring in the US and ‘near-shoring’ in Mexico, as well as supply-chain diversification into the ASEAN region.
‘This will be probably one of the topics in the US election – bringing manufacturing back home – which is a popular policy in both parties,’ Sels said.
‘The US has spent an enormous amount to bring back manufacturing,’ HSBC’s Investment Outlook for Q1 2024 read. ‘This helps accelerate the supply chain reorientation and re-onshoring exercise many companies were already planning after the pandemic. We see opportunities in industrials, engineering, construction and technology.’
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Riding the wave of technological disruption
HSBC Global Private Banking’s report touched on three key ‘high conviction’ themes for wealthy investors to consider for the next quarter: investment in new energy transportation, aerospace technologies and generative AI.
As well as creating upheaval in technology industries, AI has led to innovation in the global life sciences and healthcare sectors, according to Sels.
‘A number of recent studies have illustrated that AI software is now better at detecting certain types of cancers than the specialists by a significant margin,’ the Q1 2024 investment outlook report noted.
Sels added: ‘On the technology side, you need to judge: is AI really a game changer? Is it going to create consistently more demand, [and] quite a bit of investment.’
Extensive satellite networks and space tourism, as well as new space programs in emerging markets which had ‘rekindled the spirit of the “space race” of the 1960s’, were also creating new investment opportunities.
The report read: ‘Other interesting areas experiencing a surge in development interest include hypersonic technologies for use in aircraft, spacecraft and rockets. The boundary between the earth’s atmosphere and space is becoming increasingly blurred.’
The report also underscored the importance of investments in green infrastructure by governments and companies. ‘From a structural perspective, [these] disruptive investments widen the scope of what we can do, while tackling climate change is clearly something that we have to do,’ Sels said.
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Growth opportunities in Asia and other emerging markets
While China has seen slow growth and continues to face challenges in its property sector, Sels highlighted the wider growth opportunities in Asian markets.
‘Asia’s growth may continue to be held back by China’s property sector, but we think that government stimulus will manage to stabilise GDP growth,’ he said.
The report noted that opportunities could be found in Hong Kong and China’s service consumption, internet and electric vehicle sectors, each areas with ‘very low valuations’.
Meanwhile, positive economic trends including supply chain diversification and the growth of middle class consumers could be seen in the ASEAN region.
Cheuk Wan Fan, Chief Investment Officer for Asia at HSBC Global Private Banking, added: ‘Going against the global headwinds, Asia’s robust private wealth accumulation, resilient middle-class consumers, digital transformation and green transition offer solid domestic drivers to support healthy economic growth.’
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