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June 26, 2020updated 01 Jul 2020 11:11am

HSBC Private Banking expects a U-shaped recovery

By Arun Kakar

Growth in China and the US will pick up next year but clients are divided on their outlook, HSBC Private Banking says

US and Chinese growth will recover to 6 and 7.5 per cent respectively in 2021, HSBC Private Banking has said, as it recommended ‘resilient portfolios’ over the short term to weather the market conditions imposed by Covid-19.

The bank expects global real GDP to fall by 4.8 per cent this year, and noted that complexities involved in opening economies, continued trade tensions and an uncertain oil price would be the contributing factors to ‘sustained uncertainty’ ahead.

‘Amid high volatility and low growth, we think three useful investment strategies are: sticking to quality assets; to limit the cyclicality of sector exposure; and diversifying with gold and alternative assets,’ said Willem Sels, the bank’s global chief market strategist.

In a world of low growth and high debts, investment spending is expected to be sparse, but automation should ‘an exception’, Sels added.

‘Companies will want to make their supply, production and distribution chains more secure and safer for their customers as well as their employees,’ he said. ‘There is a geopolitical aspect to this as well, with countries and companies wanting to bring some production back home.’

A world of low yields is likely to continue, the bank said, noting that the best opportunities are to be found in emerging markets’ hard currency bonds. Asian emerging markets should outperform, it claimed, owing to ‘central bank easing, stabilisation of Chinese growth due to considerable stimulus and still-low oil prices that benefit most countries in the region’. The bank also forecasts opportunities in developed market financials.

In the longer term the bank is ‘quite optimistic,’ and sees a number of opportunities in healthcare, in the online economy and automaton going forward. It remains focused on longer-term investments, grounded in what the bank calls ‘evolving technologies’, which it defines as driving changes in ‘fundamental aspects’ of daily life.

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Among clients there is a ‘very big dispersion’ in what HSBC’s clients currently believe, Sels added. Between the bulls and bears among clients, he noted that business owners are more bearish, as they have experience of the issues with re-opening their own firms.

The majority of clients, however, ‘see the long-term opportunities’ and ‘want to remain invested’. Sels said: ‘They are looking for ways to enter the market even though it has run up already somewhat, to protect the downside.’

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