HSBC Asset Management advised investors to prepare for the economic mission and an essential shift in the macro regime.
In its outlook report, the blender announced that investors need to arrange their business cycle for a transition from recovery to expansion while bringing a period of a shift toward activist fiscal policy and lower investment returns.
The gross domestic product recovered from the current pandemic crisis in some countries. Corporate profits are experiencing a V-shaped rebound. This process is with expectations of 2022 earnings ahead of pre-Covid forecasts.
This process led to monetary policy debate to timetables for quantitative easing programs. HSBC noted that this symbolizes entering the mid-cycle, enlargement phase of the business cycle.
Global chief strategist at HSBC, Joseph Little, said that the outlook seems the reverse after rising investor optimism started to lower perceptions of risk asset classes.
He also noted that valuations seem to become a burden on returns as much good news about the recovery factored into prices.
Those which trade at a decrease relative to their financial performance and fundamentals continue to make sense versus a backdrop of rising bond yields.
Joseph Little said that they favor cyclical markets such as the United Kingdom and Europe while remaining clever in allocations. He added that the downside cyclical danger is the U.S. dollar, which is essential for their strategy favoring E.M. fixed income and international equities.
Besides the cyclical shift to expansion, the change of policy consensus reflects fiscal activism.
Joseph Little characterized this process as cyclical, using furlough programs and automatic stabilizers in recession. He also added that structurally, with socially inclusive and green medium-term growth, is a priority now.
The previous risks of the 2010s are in a different place. They are now replaced with a new set of challenges such as higher taxes. Little said that what we see is an important mission in Chinese and U.S. policy agendas.
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