Opportunities in a

Complex World
Investment Outlook
Q1 2024

Global Private Banking

Global Private Banking Investment Outlook Report

Contributors Global Chief Investment Officer

Willem Sels
[email protected]
+44 (0)207 860 5258

Director, Global Market Strategist

Head of Asset Allocation and Managing Editor
Stanko Milojevic Neha Sahni
[email protected] [email protected]
+44 (0)207 024 6577 +44 (0)207 024 1341

Regional Chief Investment Officers

Chief Investment Officer, Asia Chief Investment Officer, North Asia

Cheuk Wan Fan Patrick Ho
[email protected] [email protected]
+852 2899 8648 +852 2899 8691

Chief Investment Officer,

Southeast Asia and India Chief Investment Officer, China
James Cheo Desmond Kuang
[email protected] [email protected]
+65 6658 3885 +86 21 38881020

Chief Investment Officer, Investment Strategist, Chief Investment

EMEA and Switzerland Office - EMEA and Switzerland
Georgios Leontaris Sabrina Janna Zeyher
[email protected] [email protected]
+41 (0)58 705 5746 +41 58 705 5963

Chief Investment Officer, UK & CI

Jonathan Sparks
Chief Investment Officer, Americas [email protected]
Jose Rasco +44 (0)20 7860 3248

Global Head of Fixed Income Global Head of Equities

Laurent Lacroix Kevin Lyne Smith
[email protected] [email protected]
+44 (0)207 024 0613 +44 (0)207 860 6597

Currencies and
Commodities Strategist Director, Global Equities
Rodolphe Bohn Bryan O’Carroll
[email protected] [email protected]
+44 (0)203 359 1177 +44 (0)203 268 4220

Global Market Analyst,

Real Estate Investment Head of European Hedge Fund Research
Guy Sheppard Alex Grievson
[email protected] [email protected]
+44 (0)207 024 0522 +44 (0)203 359 7065

Senior Product Specialist,

Private Market Investments
Jorge Huitron
[email protected]
+44 (0)203 359 7040

2
 Global Private Banking

Contents
Client Letter  05
Our Portfolio Strategy 06
Changes to our Strategic Asset Allocation 10
Top Five Trends and High Conviction Themes 12
1. Asia in the New World Order  14

2. D
 isruptive Technologies 18

3. Climate Action  20

4. Evolving Society 22

5. Investing Ahead of the First Fed Rate Cut 24

Equities26
Fixed Income 28
Currencies and Commodities 32
Hedge Funds 34
Real Estate 36
Private Markets 38
Disclaimers40

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Global Private Banking Investment Outlook Report

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Opportunities in a Complex World

Q1 2024. Issued on 23 November 2023

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Asia in the New World Order

Q1 2024. Issued on 23 November 2023

4
 Global Private Banking

Welcome
Dear client caps. And as the relative value has shifted resilience should benefit our American
As we look into 2024, investors face from the credit to the rate side, our Resilience theme and strategies with
many complexities, but in this strategic asset allocation also rebalances exposure to broad US indices.
Investment Outlook, we try to unearth towards lower risk bonds (sovereigns and 3. Hedging tail risks via alternatives,
the opportunities. To do this, we think investment grade) from higher risk bonds multi-asset and volatility strategies:
it helps if we put the big questions in (high yield and emerging markets). Markets will continue to worry about
three categories. The third source of complexity includes cyclical, interest rate and geopolitical
The first fundamental question is that of the busy 2024 election calendar, the risks. A core allocation to private markets
economic and earnings growth. Global challenged US-China relationship, the and multi-asset strategies can add
economic growth should be well below multi-polar world, and the unknown diversification, while nimble hedge funds
normal, but the US engine continues to path and effects of the Russia-Ukraine can take advantage of market volatility.
run, thanks to a strong US consumer, and Israel-Hamas wars. It is hard to Volatility strategies can help take a
government stimulus supporting take directional views on these topics, directional view on volatility or can be
investment and innovation in tech and but what we do know is that they add used to generate income to stabilise
healthcare. Chinese growth is held back to volatility and increase tail risks. As portfolios’ total returns.
by the property sector challenges, but for the net zero transition, there is valid 4. Diversifying EM exposure into
more monetary stimulus and deficit concern over how governments will structural growth leaders: Slow
spending should put a floor under growth. work together. But after the hottest 12 Chinese growth, high rates and a strong
Europe is flirting with recession, causing months ever recorded, there should be no USD should impact EM countries to
us to maintain our clear preference for doubt that all parties need to deliver on different degrees. So we look for markets
the US stocks and our strong USD view. their promises, creating risks as well as with positive cyclical momentum and
But overall, we think that those calling opportunities. structural growth stories, with India
for a global recession will again be So, our analysis of fundamentals, standing out on both counts. ASEAN
proven wrong. valuations and positioning supports a and Mexico are well placed to ride on the
There is good news on the rate front constructive (though selective) stance, supply chain diversification trend and the
too. Rising rates were the number one with the following priorities: growth of middle-class consumers. Given
challenge for bond and stock markets 1. Extending bond duration ahead the very low valuations, we also see select
in 2023, as central banks kept hiking for of policy easing: Bond investors will opportunities in Hong Kong and mainland
longer than we and others had expected. gather confidence from the fact that China growth leaders in the service
But as inflation is down markedly, the central banks paused at their most recent consumption, internet, and electric
major western central banks have now meetings. We lengthen duration ahead vehicle sectors. Our Asia High Conviction
paused. This should help ease rate of the Fed rate cuts, which we expect Themes tap into all these topics.
volatility and support asset valuations. to see from Q3 2024. These cuts will After a big repricing like we’ve seen in
We see value in quality bonds following weigh on cash returns but should benefit the past 24 months, it’s important to
the repricing, and equity valuations bonds. We are overweight in developed rebalance portfolios. Amid low growth
have come down too, providing upside market government bonds with 7-10 year and a policy rate plateau, putting cash
for stocks that can deliver on earnings maturities and prefer investment grade to work in quality assets tends to be the
expectations. corporates over high yield. right approach. Our strategy for 2024 is
As policy rates stay high for longer, 2. Broadening US equity exposure to find diverse sources of return and
financing conditions may tighten further, to benefit from soft landing: The US income, to boost the return potential
but we do not expect a credit crunch. economy should continue to outperform and manage volatility.
That’s because corporate cash balances the bearish consensus. High tech We wish all our clients a happy, healthy
are high and they locked in low funding valuations are warranted by strong and prosperous new year.
rates in recent years. So the pain of structural growth in areas such as
refinancing will not be a sudden shock but Generative AI & Robots and New Energy
spread out over time. Still, credit spreads Transportation. But the resilient economy
Willem Sels,
may widen, and we manage this by should support other – cheaper – sectors
Global Chief
focusing on quality – i.e. bonds and stocks too, reflected in our North American
Investment Officer
of companies with manageable leverage Re-Industrialisation and Healthcare
and strong cash flows – preferably large Innovation themes. The US consumers’ 23 November 2023

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Global Private Banking Investment Outlook Report

Our Portfolio Strategy

We continue to put our cash to Fed has indeed managed to find the very valuation multiples to contract (see
work because valuations have narrow ‘soft landing’ strip. In fact, it’s graph). Luckily, the earnings side has
improved and US resilience should better than that, considering that Q3 GDP offset this: there has been relief that
keep us from going into a global growth stood at 4.9%: resilient labour most economies have not gone into
recession. But in this complex world markets and falling inflation continue recession, and easing cost pressures
we focus on quality, resilience and to boost consumer spending, and have boosted earnings. There is some
diversification throughout, government stimulus programmes concern that S&P 500 valuations are too
preferring Treasuries and investment re-invigorate manufacturing and high compared to bond markets, but as
grade over high yield; choosing US, investment activity. The relative our graph shows, this is mainly due to
EM Asia and Latin American stocks outperformance is stark, as Europe flirts the high valuations of the megacap tech
over Europe; and adding hedge funds with recession and China’s property stocks with support of their high RoE.
and tail risk hedges. We formulate sector continues to be a drag on growth. When we weigh all stocks the same way,
four priorities to help capture In this context, we have been holding a the valuation gap is less. Still, with full
diversified sources of returns and preference for US stocks, a mild cyclical valuations in equity markets, we need to
manage volatility. US sector stance and a strong USD view, make sure that the companies we choose
and we continue to do so. warrant the multiples, and we therefore
Cash: underweight 2024 will be a journey though, as focus very strongly on companies that
economic growth in the West should can deliver on earnings expectations.
Fixed Income: overweight bottom in Q1, followed by a mild This confirms the quality bias that we
acceleration. Falling CPI and the comfort have held throughout 2023 and continue
Overweight developed market (DM) that rates have peaked, should support to hold.
government bonds consumption and investment spending The good news, now, is that the rate
A preference for investment grade across Western nations. There are two- headwind should start to ease. The
over high yield way risks around this due to the two Federal Reserve (Fed), European Central
devastating wars, which could ease or Bank (ECB) and Bank of England (BoE)
Equities: neutral deteriorate, and would impact Europe have all paused in their latest meetings,
more than the US. As for China, our and we think they are done hiking rates.
Overweight US, EM Asia and Latin base case is GDP growth that roughly That should anchor the short end of
America goes sideways as the property sector the bond yield curve, and as inflation
Underweight Eurozone and EM EMEA continues to be an obstacle to growth continues to ease, we think 2-year yields
Style biases: quality and large cap acceleration. But the government’s should even fall later in 2024 as markets
willingness to widen the deficit to boost start to anticipate rate cuts in coming
growth should ease the downside risk years. We expect the first Fed rate cut in
Alternatives: overweight
for Chinese stocks and create an upside Q3 2024 and the first rate cut by the ECB
Overweight Hedge Funds scenario if things go well. For now, we in December 2024 (the BoE may only cut
maintain our underweight on Eurozone in 2025).
Keep core allocations to Private
stocks and our neutral view on the UK The longer end of the yield curve is
Markets and Real Estate
and China. But we prepare to be nimble impacted by other factors and was
in equity markets when the situation pushed up by stronger economic data
The cyclical outlook continues to changes and think USD strength will and concerns about rising US deficits,
support US stocks and USD probably start to stall in Q2 or Q3. leading to rising supply at a time when
‘US exceptionalism’ dominated markets the Fed is selling bonds (quantitative
Any relief from the rate side?
in 2023. The US economy defied tightening). We think much is now priced
The biggest obstacle to Western equity in, and expect longer dated yields to
investors’ fears that Fed tightening would
markets has come from the rate side come down. For one, US real yields are
lead to a recession, and it seems that the
in 2023, as it has forced price/earnings attractive compared to other markets,

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 Global Private Banking

which could lead to flows into USD This is mainly because of the risk of and consumers had both extended the
bonds. The current high real yields some spread volatility. maturities on their loans and mortgages
contribute to tightening of financial Indeed, the question is by how much when rates were low, which means that
conditions, which is doing the work and when the big move in policy and many are not yet hit by the increased
of the Fed, and may therefore lead Treasury yields we’ve seen to date costs. But once the debt needs to
to market hopes of earlier cuts. The will push up credit spreads, loan be refinanced, costs can jump quite
Treasury Department has signalled it will delinquencies and corporate defaults. significantly, causing some distress. So
issue more shorter-dated bonds, which This concern surfaced first in March the good news is that borrowers are not
should help lower the cost of long-dated 2023, when tightening lending standards all hit at the same time and the pain will
bonds, while the Fed will probably halt and US regional bank stress caused be gradual; the bad news is that some of
QT in 2024. All of this made the spike of some investors to become very negative the pain still needs to come (though for
10-year Treasury yields to 5% in October, on credit. But this proved to be very some, rates may be cut by the time they
unsustainable, and we therefore recently premature, and the long lags between need to refinance).
extended duration to 7-10 years. In the rate hikes and the real economic For investors, this implies that we
investment grade, we keep duration to impact have puzzled investors. Where should continue to focus on companies
5-7 years, and in high yield to 3-5 years. do those lags come from? Companies with manageable leverage and solid
cash flows, and we continue to prefer
Yields of high risk and low risk bonds have not gone up proportionally, but investment grade over high yield. We
almost in parallel. That suggests that the value has shifted in favour of high worry that lower real estate values,
quality bonds higher borrowing costs and refinancing
requirements will continue to put
14 USD IG USD HY EM USD Govt bonds
pressure on real estate and therefore
EM USD Corp Bds EM Local Currency also on US regional banks. As for private
12
credit, managers can be selective and
10 achieve quite attractive pricing on new
Yield to worst (%)

loans. Performance of older loans will

8
vary depending on the borrowers,
though the securitised nature and
6
covenants may help.
4 In our strategic asset allocation (see
next chapter), we make some changes
2
as well, recognising that while Treasury
0
yields have moved up a lot, credit
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 spreads have not, which means that the
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable relative value has shifted. As a result, we
indicator of future performance. have increased our strategic allocation
to developed market government bonds,
How expensive are US stocks really? When we weigh all stocks equally, they away from risky fixed income (also
are still more expensive than bonds, but not dramatically so adding to equities to keep the overall
28 Equal weighted US P/E ratio S&P 500 P/E ratio -1.5 portfolio volatility unchanged).
BBB real long bond yield (RHS, inverted)
26
-0.5
24
0.5
22
Price / Earnings ratio

1.5
20
%

18 2.5

16
3.5
14
4.5
12

10 5.5
Oct-13 Oct-15 Oct-17 Oct-19 Oct-21 Oct-23
Source: LSEG, Moody’s Investor Services, HSBC Global Private Banking as at 22 November 2023.
Past performance is not a reliable indicator of future performance.

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Global Private Banking Investment Outlook Report

Investing in a complex world year. Other topics in the US election That’s why we continue to integrate
Getting the view on economic growth, debate may include global tariffs and sustainability across our core portfolio
earnings, rates and spreads right is only healthcare costs, which could impact the and the satellites. Thematic satellites
the first step. In addition, a number of inflation outlook, but the fourth year of are often growth-style companies,
other hot topics will influence markets a Presidential term tends to be good for which suffered from rising rates in 2023,
in 2024. The government debt pile is an stocks. A busy election calendar in other but that headwind should ease, as
important topic of discussion, as some economies too – including Mexico, India, we have discussed above. Integrating
wonder whether it will result in lower Indonesia, Taiwan, the EU and probably sustainability in the core can often be
structural growth (arguably, in Japan and the UK – may add to two-way volatility. done with less tracking error risk and
Italy, for example, it has). We’re hopeful The multi-polar world further lower style biases, especially if investors
that this headwind will be countered complicates things, and collaboration include companies that are making the
by innovations in technology, and the may become even harder because of the transition and don’t only include those
fact that much of the US spending has geopolitical conflict. Some collaboration with already high ESG scores (the latter
been on productive investments towards in areas where there is a clear imperative tends to result in a sector and style bias).
re-onshoring and the net-zero transition, is likely though, and we believe this
Priorities for the next 6 months
which should be accretive to growth. includes the net-zero transition. COP28
may suffer from the many divisions, Our table below shows our priorities
Debt will be an important topic in the US
but there is a lot of pressure on the for investors, which are focused on
elections and will be centre stage in the
host. And where governments don’t capturing the improved valuations, while
dysfunctional Congress. The US-China
deliver, we think there is still a big quality, diversified sources of returns and
relationship meanwhile may remain
impetus from companies, consumers, tail risk hedges are there to navigate our
challenged as election candidates try
cities and investors to progress. volatile and complex world.
to capture the attention throughout the

Our four investment priorities

1. Extending bond duration ahead of policy easing

Why? Bond yields rose more than expected in 2023 What? We are overweight in developed market government
because central banks kept hiking for longer than bonds and are comfortable with 7-10 year maturities as
anticipated. But the Fed and others have now paused and we want to lock in current attractive yields. In corporate
this has already caused yields to drop somewhat from credit, we have an overweight position in investment
recent highs. We lengthen duration ahead of rate cuts we grade corporates. But as spreads could see some volatility,
expect to see from Q3 2024, because when the Fed starts we have a 5-7 year duration preference in investment
cutting, markets typically underestimate the pace of those grade, and are much more selective in high yield. We see
cuts. That will weigh on cash returns but should benefit opportunities in strategies that exploit the downward shift
bond returns. Investors’ current high cash balances, big and mild dis-inversion of the yield curve.
negative speculative Treasury positions and the gradual end
of quantitative tightening should also help support bonds.

2. Broadening US equity exposure to benefit from soft landing

Why? The US economy has continued to surprise to the What? We maintain our overweight position in technology
upside and remains resilient. Strong labour markets and names, in particular Generative AI and Robots, New
falling CPI help consumer spending; government stimulus Energy Transportation and diversified tech leaders, which
programmes support investment spending; and the US is have shown they can perform well even in a high rate
relatively self-sufficient in energy, making it less sensitive environment. The Inflation Reduction and CHIPS & Science
to the risk of an oil price shock. US tech valuations are acts support our North American Re-Industrialisation and
elevated but off the peak, and they are warranted by Healthcare Innovation themes. The US consumer continues
the considerable structural growth in this area and high to show resilience, thanks to strong labour markets
RoE. We broaden exposure to other sectors with strong and falling inflation, which should benefit our American
fundamentals that are cheaper and can provide sector and Resilience theme and strategies with exposure to broad US
style diversification. equity indices.

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 Global Private Banking

3. Hedging tail risks via alternatives, multi-asset and volatility strategies

Why? Markets will continue to worry about cyclical, What? We mitigate these risks through several strategies.
interest rate and geopolitical risks. Central banks remain First, a strategic allocation to private markets as a core
data dependent, Europe flirts with recession, China could holding should add protection to portfolios via risk
see two-way growth risks and there are plenty of elections diversification. Second, hedge funds are much nimbler
to create market-moving headlines. Military conflicts in than the typical individual investor and can take advantage
Ukraine and Gaza continue to fuel volatility in the energy, of mispricing created by market volatility. Multi-asset
commodity, and currency markets. All these factors are strategies can dampen volatility thanks to diversification.
bound to keep volatility elevated, create dispersion between As the rate cycle has reached a plateau, we think bonds
markets and generate opportunities for nimble investors. and equities should become less correlated, generating
better diversification. Lastly, volatility strategies can take
a directional view on volatility, exploit spikes in volatility or
generate income to stabilise portfolios’ total returns.

4. Diversifying EM exposure into structural growth leaders

Why? Slow Chinese and global growth, high rates, a strong What? India’s stock and bond markets should benefit from the
USD and upside risk to oil prices should impact all emerging country’s strong cyclical momentum and structural growth.
markets to different degrees. So we look for markets with ASEAN and Mexico are well placed to ride on the supply chain
positive cyclical momentum and structural growth stories. diversification trend and growth of the middle-class consumers.
Investors are sometimes over-exposed to their home Given the very bearish growth expectations, valuations and
markets or most familiar stock markets so we believe investor positioning, we also see select opportunities in Hong
diversification can help reduce risks while also widening the Kong and mainland China growth leaders in the service
opportunity set. consumption, internet and electric vehicle sectors. Our Asia
High Conviction Themes tap into all these opportunities.

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Global Private Banking Investment Outlook Report

Changes to our
Strategic Asset
Allocation
In our annual update to our Relative attractiveness however remains The relative attractiveness of non-US
strategic asset allocation, we driven by asset-class specific factors. equity markets is also aided by the high
are incorporating our refreshed Expected excess returns continue to valuation of the US dollar based on
10-year capital market expected vary across the different asset classes the enhanced purchasing power parity
returns, courtesy of HSBC Asset and regions. Equity markets across the (PPP) framework. In fact, we see USD as
Management. The major move globe have seen a decline in the equity overvalued against all major currencies
in government bond yields and risk premium over the last 12 months. from a long term perspective (though
changes in macroeconomic But the higher cash rates make the well supported in the short term), and
projections warrant a decreased overall expected return broadly expect a gradual reversion to fair value
allocation to high yield and unchanged for US equites, and from 0.74% p.a. for CHF and 5.26% p.a.
emerging market debt, an increased meaningfully higher across other key for JPY. We also expect the US dollar
allocation to government bonds, regions. We observe the largest to depreciate across most emerging
and a slight increase to equity increases in expected returns in Japan market currencies in the long term, with
allocations in 2024. We continue (11.6% now vs 9.6% last year), UK the notable exception being the Mexican
to see value in maintaining non- (9.6% now vs. 8.9% last year) and Peso which has been pushed higher of
directional exposures via hedge emerging markets (10.3% now vs 9.6% late as a beneficiary of near-shoring.
funds and utilising private markets last year). Intuitively, this makes sense
for further diversification. Overall, as price / earnings multiples have
our return expectations have generally dropped.
generally moved up, indicating Option-adjusted spreads have tightened in USD HY and EM markets
the current valuations are a good 600 Single-B U SD bonds BB-rated bonds EMD
long-term entry point for well
diversified portfolios. 550
There has been a significant adjustment
in expected returns over the past year, 500
primarily driven by changes to current
valuations and assumptions regarding 450
basis points

the prospective interest rate paths. Even

though projections include interest rate 400
cuts in the next few years, we now
expect interest rates to remain elevated 350
for an extended period of time, and
have slightly increased our assumption
300
of the terminal rate. The higher cash
rates warrant uniformly higher expected
250
returns across all asset classes as they
are a foundational building block for
200
return forecasts. Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Source: Refinitiv, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
indicator of future performance.

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 Global Private Banking

Across fixed income markets, the segments of the market. Over the last Macroeconomic and policy uncertainty
sharp rise of policy rates over the year 12 months, our total expected return for is likely to stay. We continue to see value
naturally translates into higher expected global high yield fell from 6.6% to 5.3%, in maintaining non-directional exposures
returns across all maturities. The slight and from 7.5 to 6.5% for hard currency via hedge funds, where we’ve seen
re-steepening of the yield curve since emerging market debt. modest increases in expected returns
2022 has also been positive for the With value moving from credit spreads since a year ago. Furthermore, we also
term premium in government bonds. towards the underlying rates, our SAA continue to favour diversifying portfolios
As an example, yields in the 4%-5% update naturally favours a reduction by allocating to private markets and
range on US Treasuries provide a decent in high yield and emerging market other alternatives.
cushion against further volatility in debt allocations and an increase in
rates, and indeed we see a substantial government bond allocations; a long-
improvement in long-term expected term move that is also in line with
returns on Treasuries on a risk-adjusted our shorter-term views. We also
basis. In credit markets, we have observe a slight increase in equity
witnessed a tightening of credit spreads allocations supported by the higher
across most geographies without a equity risk premium outside of the US,
corresponding improvement in default and therefore improved overall risk
outlook, most notably in the riskier return profile.

Expected returns on sovereign bonds have risen substantially in the post-

Covid world

6 Germany US Japan UK

5
Expected Return (% p.a.)

-1
Jan-20 Jan-21 Jan-22 Jan-23
Source: Refinitiv, HSBC Global Private Banking, as at 22 November 2023. All expected returns are shown in FX-
hedged USD terms. Forecasts are subject to change.

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Global Private Banking Investment Outlook Report

Top Five Trends and

High Conviction
Themes
We have reorganised our framework Future Cities; Healthcare Innovation; Resilience has a quality tilt, while
for thematic investing. In terms and Social Empowerment and Well- North-American Re-Industrialisation
of structural trends, disruptive being. has a value tilt. The two bond-focused
technologies continue to push the Many of these structural themes may themes add income as an important
boundaries of what we are able to need a longer term approach to fully stabiliser of returns.
do, while climate action is probably see their potential, so we complete You will read about our new Asia-
the first thing on the list of things we them with a set of shorter-term ones, focused themes in the next chapter.
have to do. To complete our structural which are well adapted to the current The region remains by far the biggest
trends, we launch ‘Evolving Society’ environment of low growth and peak contributor to global growth, but we
which is all about what we want to policy rates. This is also because are picking our spots, looking for
do – our preferences, tastes and how the structural themes often have a quality earnings and structural
we want to live. The themes under this growth-style bias (i.e. they are interest growth leaders.
trend will evolve of course, but for now, rate sensitive) and we want to balance
we focus on the Infrastructure and them out. For example, American

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 Global Private Banking

Top trends for 2024 and Q1 High Conviction themes.

ew Wo p tive Techno
eN ru esting Ah
th rld is lo Inv e
D

gi
in

ad
es
Or
Asia

of t
de r

ction

he Firs
Asia Structural Cyclical
E vo l v

eA

tF
in

at

ed
So
g

i
m

Cl
R at
cie e Cut
ty

Asia Structural Cyclical

Asia in the Disruptive Investing Ahead of the

Climate Action Evolving Society
New World Order Technologies First Fed Rate Cut
® Reshaping Asia’s ® Generative AI & ® Biodiversity and ® Infrastructure and ® American Resilience
Supply Chain Robots Circular Economy Future Cities ® North American
® Future Asian ® New Energy ® Opportunities ® Healthcare Re-Industrialisation
Consumer Transportation in Sustainable Innovation ® Defensive Positioning
® Rise of India ® Aerospace Energy ® Social across DM Financial Bonds
and ASEAN Empowerment and ® Opportunities in Quality
® Capturing Peaking Well-being Credit
Asian Yields

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Global Private Banking Investment Outlook Report

Asia in the
New World Order
We find diverse and Changing global export market share driven by supply chain reorientation

compelling Asian growth 12

mainland China India ASEAN
opportunities from the
powerful structural 10

trends of supply chain

8
%, 12 month moving average

reorientation, rising
Asian wealth and middle 6

class consumers, the

digital transformation 4

and green transition.

2
We adopt a thematic
approach with a focus
0
on idiosyncratic drivers Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17 Jan-20 Jan-23

and growth differentials Source: IMF, HSBC Global Research, HSBC Global Private Banking as at 22 November 2023.

to generate alpha.

Our Four High Conviction Themes

1. Reshaping Asia’s This new theme focuses on Chinese and Asian industry leaders which have successfully diversified
Supply Chain their supply chains to enhance competitive edges. We also like companies in India and ASEAN that
benefit from the China+1 strategy.

2. Rise of India and We see promising secular growth opportunities in India and ASEAN, riding on the structural tailwinds
ASEAN from strong foreign and domestic private investments, young demographics, the technology boom
and green transformation.

3. Future Asian Driven by rising Asia wealth and middle class consumers, Asia’s consumer discretionary sector
Consumer stands out as a bright spot, including select Chinese internet leaders, Asian consumer discretionary
companies, AI-driven and digital consumption and Asian financial services providers.

4. C
 apturing Peaking We focus on locking in compelling yields from quality Asian bonds. We favour Asian financials,
Asian Yields Indian local currency bonds, Indonesian quasi-sovereign IGs, Korean IG bonds, Macau gaming and
Chinese TMT credits.

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 Global Private Banking

4.2 %
19 % 40 %
22 %

4.2% GDP growth 19% earnings growth 40% of Global 22% of global nickel
forecast for Asia is projected for Asia’s Capability Centres reserves are located
ex-Japan in 2024 Consumer Discretionary are located in India in Indonesia
sector in 2024

Source: Bloomberg, HSBC Global Research, HSBC Global Private Banking as at 22 November 2023.

While Asia remains on track to We launch the new High Conviction fragmentation and technology
contribute two-thirds of global growth Theme on Reshaping Asia’s restrictions are accelerating global
in 2023, the region is facing multiple Supply Chain, as the driving forces supply chain diversification across the
challenges from elevated USD rates, of geopolitical tensions, trade region. Driven by US trade tariffs and
weaker global demand, slow Chinese
Global supply chain diversification is driving strong FDI inflows into
growth, tightened global liquidity
India and ASEAN
and geo-economic fragmentation. Average (2020-2022) = 221.5
US-China trade tensions and US 250

technology restrictions have prompted

many multinational corporations
Average (2010-2019) = 153.9
and also Chinese manufacturers to 200
FDI into India and ASEAN (USD bn)

diversify their manufacturing supply

chains towards Southeast Asia and
India. Asian corporates are actively
150
adapting to the new world order by
revamping their supply chains in order to
enhance competitive edges and hedge Average (1998-2009) = 48.3
geopolitical risks. 100
Going against the global headwinds,
Asia’s robust private wealth
accumulation, resilient middle class 50 Average (1990-1997) = 20.1
consumers, digital transformation and
green transition offer solid domestic
drivers to support healthy economic
growth. We forecast Asia ex-Japan GDP 0
1990 1994 1998 2002 2006 2010 2014 2018 2022
to grow 4.2% in 2024, close to double Note: For ASEAN, it includes Indonesia, Malaysia, Philippines, Thailand and Singapore.
the average global growth of 2.3%. Source: World Bank, HSBC Global Private Banking as at 22 November 2023.

15
Global Private Banking Investment Outlook Report

COVID pandemic disruptions, many To mitigate geopolitical risks and exports powering employment, private
international and Chinese manufacturing alleviate the impact of trade tariffs, consumption and productivity gains.
companies have actively rebuilt their western multinational corporates Indonesia offers one of the best
manufacturing supply chains in ASEAN implement the China+1 strategy by growth and investment stories in
and India while many critical production building new production facilities in India Asia, supported by its large, young
components continue to be sourced and ASEAN to supplement their supply and growing population, with rapid
from China. chain in China. We identify geared urbanisation and robust private
Despite the supply chain reconfiguration winners in South Asia which gain from consumption being the key growth
trend, China retains its leading global strong FDI inflows driven by supply engine. Indonesia further benefits from
export market share due to strong chain reconfiguration. upgrading of its manufacturing value
growth of high-value-added machinery In India, services exports surged by chain. The country’s abundant reserves
products, EVs, consumer electronics USD60bn to USD300bn over the past of green minerals and metals are vital
and services exports. China maintains its year due to the rise of Global Capability inputs for the EV and battery industries.
central role in the global manufacturing Centres (GCCs) set up by multinational Indonesia holds the world’s largest nickel
supply chains as a dominant supplier of companies, a reflection of the value reserves with an estimated 21m tonnes
components to manufacturers in other chain upgrade. By some estimates, 40% or 22% of global reserves.
parts of Asia. of GCCs globally are located in India, Another bright spot in the Asian market
We favour Chinese and Asian industry employing 1.7m people alone. is the service consumption sector.
leaders which have successfully In ASEAN, Indonesia and Thailand are Our new High Conviction Theme on
diversified manufacturing supply chains key beneficiaries of FDI inflows into the Future Asian Consumer focuses
outside their home countries. Many of EV sector while Singapore, Vietnam and on the consumer discretionary sector
them are building material production Malaysia stand out to gain from strong which is projected to deliver 19%
capacities in Southeast Asia and India to foreign investments in the technology earnings growth in 2024 despite the high
tap into their large and young working and consumer electronics industries. comparison base this year.
populations to improve cost advantages. Our theme on Rise of India and ASEAN Asian consumers are gaining influence
Notably, China’s outward direct captures promising secular growth in shaping global spending trends, as
investment (ODI) into ASEAN surged opportunities in South Asia, riding on the the balance of consumption shifts from
by 8% CAGR between 2018 and 2022 structural tailwinds from strong foreign the West to East as a result of rising
since the beginning of US-China trade and domestic private investments, Asian private wealth, healthy household
tensions, expanding to USD18.7bn in young demographics, technology boom balance sheets, solid personal income
2022 or 11% of China’s total ODI. China’s and green transformation. India has growth and a high saving rate – all
leading textile, consumer electronics consistently delivered stronger-than- supported by the region’s higher than
and EV companies have been investing expected growth in manufacturing and global average economic growth.
heavily in ASEAN. service activities throughout 2023, with The rise of middle-class consumers in
strong FDI inflows and booming services China, India and ASEAN countries is

16
 Global Private Banking

reshaping the consumption patterns now expected to return to central bank Singapore and Thailand. Among Asian
across sectors given their diverse target ranges in 2024 in most countries, corporates, we like Korean IG bonds
needs and rising demand for services well ahead of most other regions. We issued by high-quality companies,
consumption. believe Asian yields are peaking and Macau gaming and Chinese TMT credits.
In China, we favour select internet expect policy rate cuts in Australia, We stay overweight Indian local
leaders, consumer discretionary mainland China, Hong Kong, India, currency bonds which are well
plays and new opportunities from Indonesia, South Korea, the Philippines supported by favourable liquidity
the applications of AI and digital and Singapore in 2024. Monetary easing drivers from the global EM bond index
consumption devices. The shift in Asia’s of Asian central banks will bring policy inclusion and strong structural growth
consumer spending patterns from tailwinds for the Asian bond markets in of the economy. Indonesian quasi-
consumer goods towards services, such the coming year. sovereign IGs remain our most preferred
as travel, catering, movies and online We favour Asian financials, which play in Southeast Asia, thanks to the
entertainment, is expected to sustain are trading at attractive valuations, country’s strong fundamentals, robust
strong growth in the years to come. including Japanese and Korean banks government balance sheet and benign
We also position in Asian financial and life insurers, and banks in Australia, inflation outlook.
services providers which can capture
the growing middle-class consumer Asian IG bonds offer attractive yield pickup
demand for wealth management and 8
insurance services. Implied Treasury yield Asia IG spread
Asia IG yield
In Southeast Asia and India, the 7
promising consumption outlook is
driven by digital consumption and rise 6
of the young middle class. Leading IT
5
companies and financial institutions in
ASEAN and India are well positioned to
4
capture the growth opportunities.
Positioning ahead of the Fed’s rate 3
cuts in 2024, our theme on Capturing
Peaking Asian Yields focuses on 2
locking in compelling yields from
quality Asian bonds. The all-in yield of 1
the Asian IG bond index is attractive
at around 6.3%, well above the 3-year 0
Oct-18 Oct-19 Oct-20 Oct-21 Oct-22 Oct-23
average of 4.5%. Disinflation is on track
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
in most Asian economies, with inflation indicator of future performance.

17
Global Private Banking Investment Outlook Report

Disruptive Technologies
The internet provides Global annual installations of industrial robots

the digital highway 800 +7%

718
700 662
facilitating worldwide 593
622
600 553
availability of products 526
thoussands of units

500
and services from 400 423
387 390
400
cloud computing and
300
satellite-based services
200
to surgeons operating
100
on patients located in
0
another continent. 2017 2018 2019 2020 2021 2022 2023e 2024e 2025e 2026e
Source: World Robotics 2023 report, IFR as at September 2023. HSBC Global Private Banking as at 22
November 2023.

Our Three High Conviction Themes

1. Generative AI & Robots Over the last 12 months, Artificial Intelligence (AI) has been disrupting the IT landscape
with fast evolving large language models (LLMs) and Generative AI models that are
starting to transform companies and excite consumers.

2. New Energy Transportation Transportation is transitioning to commercially competitive alternative fuels

including electricity, hydrogen and biofuels, that offer lower environmental impact,
a superior consumer experience and better facilitate the integration of other
advanced technologies.

3. Aerospace After decades in the doldrums, the aerospace sector is undergoing a renaissance
driven by recent technological advances; rising geo-political tensions; and by private
enterprises and rising economies striving to become major players in what was
previously a US-Russia super-power duopoly.

When science fiction immersive video games, films or the Wells or Isaac Asimov. The following
becomes reality book reader’s mind. But in the interim investment themes capture three areas
Space may indeed be the ‘final here on earth, scientists have made of technological advancement that
frontier’ with human intergalactic substantial technological advances have been launched and are being
travel still a distant dream that in the last few years that appear to commercialised, with real and present
can only be experienced through come from the pages of novels by HG investment opportunities.

18
 Global Private Banking

Generative AI & Robots is an important but repetitive, labour choices by consumers and companies.
The ‘march of the machines’ headlines intensive task performed by trained Clearly, there will be winners and losers
depicting scenes from HG Wells’ novel highly skilled specialists. as these technologies evolve and create
‘War of the Worlds’ or robots from A number of recent studies have new industries and supply chains. For
Fritz Lang’s film Metropolis eliciting illustrated that AI software is now example, electric vehicle batteries
fearsof a dystopian future with robots better at detecting certain types require metals such as lithium, cobalt
replacing humans still litter the press. of cancers than the specialists by and nickel, whilst electric motors require
In reality, intelligent machines are a significant margin. Through this rare earth metals.
enhancing and improving the lives of theme, we embrace the investment It is important to navigate the present
many humans. There are numerous opportunities that benefit from AI and while keeping an eye on the future given
practical examples, from aircraft auto machines’ new capabilities. the shifting market dynamics including
pilots, cars’ automatic braking systems the potential switch from lithium ion to
to quality checking machines in the New Energy Transportation
state batteries at the end of the decade.
food processing industry. To date, the History is littered with examples of
scope for automation has been limited accepted norms in society becoming Aerospace
by their capabilities. The introduction unacceptable in a relatively short Until recently, space exploration was
of a new generation of more advanced period of time as people are alerted to the preserve of a duopoly of the US
AI software combined with the latest potential adverse health effects. and Russian governments due to the
optical and sound sensing technologies costs, risks and access to the necessary
Examples include lead water pipes; lead
has substantially expanded the technologies. Since the early 1980s,
in petrol; and coal burning in inner cities.
capabilities and therefore the potential space programs appear to have been
A similar public awareness is starting
applications that can be automated. deprioritised with the subsequent loss of
to emerge with respect to the pollution
In parallel, robots are becoming not momentum and funding.
arising from our transport systems.
only more mobile but also more agile
Carbon dioxide, carbon monoxide, Over the last decade, as the barriers
so they can independently and easily
methane, nitrous oxide gases all harm to entry have fallen, new entrants have
navigate various terrains and obstacles.
human health, while also contributing rekindled the spirit of the ‘space race’
These developments will enable robots
to global warming. Advances in lithium of the 1960s with Chinese, Indian and
to perform more complex tasks such
ion battery and fuel cells technologies Israeli governments developing home-
as maintenance and monitoring tasks
create an alternative affordable source grown space programs. In addition,
throughout a facility.
of power for many modes of transport. several private initiatives have been
Besides powering more intelligent Electric cars and buses, hydrogen launched. The breadth of these varied
machines, AI is also working in tandem powered trains and passenger aircrafts initiatives include global satellite
with humans to improve outcomes and using biofuel are already a reality. Their networks; space tourism; moon
decisions. For example, reviewing numbers are set to increase due to shots; interplanetary travel to Mars;
X-rays and scans from hospital patients government legislation and positive orbiting powerful telescopes; meteor
sampling missions.
Other interesting areas experiencing
Electric Vehicles’ Unit Sales by Region
a surge in development interest
12 Asia Europe North America RoW include hypersonic technologies for
use in aircraft, spacecraft and rockets.
10 The boundary between the earth’s
atmosphere and space is becoming
8 increasingly blurred. As an example,
one company has developed an engine
millions

6 that can operate hypersonically as a jet

engine breathing air, and as a rocket
engine in space, enabling an aircraft to
4
fly from earth to space more efficiently
than a rocket.
2

0
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023.

19
Global Private Banking Investment Outlook Report

Climate Action
We are only in the Global renewable energy capacity continues to grow rapidly

foothills of a sustainable 1400 Solar Wind

future and there is already 1200

significant momentum 1000

in the trend driven by
GigaWatt

800
new technology, global
600
investment and the desire
400
for sustainable solutions.
Sustainability is a trend 200

that will continue to grow 0

and provide investment Jan-00 Jan-06 Jan-12 Jan-18 Jan-24 Jan-30

opportunities. Source: Bloomberg Finance L.P., HSBC Global Private Banking as at 22 November 2023.
(2023 – 2030 figures estimated).

Our Two High Conviction Themes

1. Opportunities in There has been a marked rise in the desire of global economies to move to lower carbon energy
Sustainable Energy production while also increasing the independence of their domestic energy production. Renewable
energy offers a solution.

2. Biodiversity and Biodiversity across the globe has been materially impacted by human activity in the last 50 years.
Circular Economy Investment initiatives to finance action to conserve and reverse the damage are now gathering pace.

Solar and wind power are replacing coal and nuclear in the energy mix
Coal Gas Hydro Solar Wind Oil Nuclear Other Bioenergy
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Our World in Data, HSBC Global Private Banking as at 22 November 2023, data is to end 2022.

20
 Global Private Banking

Like wider markets, sustainable Our theme, Opportunities in Energy is not the only industry
investments have experienced a Sustainable Energy aims to capture undergoing major change toward a
challenging year. With rates and inflation the most attractive potential of the sustainable future. Biodiversity has risen
costs having risen rapidly in the prior18 sustainability trend which is the change up the order of priorities too and with
months, projects are being reviewed crossing the entire energy framework. it the circular economy is also coming
and capex spends are being adjusted. Energy is the primary channel through into sharper focus. We engage with
This however is not a reflection of the which positive change for the climate is this trend through our Biodiversity and
fundamental opportunity sitting within occurring. The technologies to deliver Circular Economy theme.
the space. The changes happening sustainable energy are now largely Biodiversity across our planet has
across corporates, governments and available and in some cases they are been severely impacted over the last
at the individual level are growing economically competitive with traditional 50 years and the continued expansion
every day and driving the world further fossil fuels. Approaches such as solar, of human activities in fishing, farming
towards a sustainable future. Recent wind, biofuels, hydrogen and hydro and manufacturing destroy ever more
progress towards this future include; and their associated supply chains and ecosystems that are key to a sustainable
1. The US Department of Energy (DOE) services are opening up a whole new future. The living planet index has
has announced USD7bn to launch seven set of opportunities to investors. fallen nearly 70% in 50 years which
Regional Clean Hydrogen Hubs (H2Hubs) These new economies are also being is catastrophic for our planet and for
across the nation and accelerate the supported by government regulations all its ability to host us, humanity, in an
commercial-scale deployment of low- over the world which is a key support to ongoing manner.
cost, clean hydrogen driving change. Much is happening within the
2. Saudi Arabia has launched the Despite the ongoing challenges of the Biodiversity space in recent years
Greenhouse Gas Crediting and Offsetting industry and higher costs for projects, to address this loss and to invest
Mechanism (GCOM) aimed at reducing the trend toward the uptake of these in improving it. The governance of
greenhouse gas emissions and fostering technologies continues and this can biodiversity is overseen on a global level
sustainability and, be demonstrated in EMEA where by the UN body, the Convention on
3. Starting from 2026, it was investment in solar and wind projects Biological Diversity which is supported
announced by Brazil’s Securities rose to $78bn for the first half of 2023 by the Kunming-Montreal Global
and Exchange Commission (CVM) alone. This is a 47% increase over the biodiversity framework which outlines
and Ministry of Finance that public same period the prior year. The majority targets and actions for governments and
companies in Brazil will be required to of this was in solar which accounted for corporates within a financial framework
provide annual sustainability and climate $51.5bn while wind attracted $26.7bn of benefit sharing. There is also the
related disclosures. of investment (Source: Bloomberg NEF, Taskforce on Nature Related Financial
November 2023). Disclosures who provide a framework
for companies to disclose their
dependencies on nature and indicate
how they are managing their interactions
Global biodiversity continues to decline rapidly with nature and if they are financially
material. The Taskforce on Nature
1.2
Related Financial Disclosures (TNFD) is
in place too and recommends the LEAP
1 approach to identifying and assessing
nature related issues. Locate where a
0.8 business interacts with nature, Evaluate
the dependency and impact on nature,
Assess the risks and opportunities
index

0.6
and Prepare to respond accordingly
in line with the TNFD recommended
0.4 disclosures.
The continued growth of investment
0.2 in the industry and supportive
guidelines and frameworks for
0 corporates to use is creating attractive
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 opportunities for investors.
Source: livingplanetindex.org, HSBC Global Private Banking as at 22 November 2023.

21
Global Private Banking Investment Outlook Report

Evolving Society
The way we want to Many EM countries are continuing to see very rapid urbanisation

live and what we value 100

1960 2021
90
most is undergoing
urbanisation in %
80
70
structural change. 60
50
The themes under this 40
30
20
trend may change from 10
0
time to time, but we Gabon Angola Saudi
Arabia
China Algeria
Oman South Malaysia Turkey Indonesia
focus on urbanisation, Korea

healthcare and social Source: UN population division, HSBC Global Private Banking as at 22 November 2023.

empowerment for now.

Our Three High Conviction Themes

1. Infrastructure and Given their economic importance, cities compete with each other to offer the highest efficiency
Future Cities and most enjoyable living environment. Smart cities invest huge amounts to gather and use data
that help optimise traffic and energy consumption. Investment in energy resilience, lowering
emissions and flood defenses has become crucial. We foresee continued rapid urbanisation, with
EM markets leading the charge.

2. Healthcare Innovation Our healthcare theme recognises the very rapid innovation in healthcare, as well as the increased
importance people place on their own health, and healthy living. Life sciences is a rapid
growth sector benefiting from government stimulus and advances in AI, which speed up drug
development. Health monitoring devices are becoming increasingly popular Christmas presents,
and technology lowers the cost of healthcare services.

3. Social Empowerment Gender equality, female workforce participation, access to quality education and healthcare are
and Well-being important goals that are seeing widespread progress, though much remains to be done. Investors
can use an impact or thematic approach to this theme, or even select companies that are making
a positive transition to better social values and practices. While investors should focus on financial
and investment considerations primarily, ESG considerations are important too. (Please refer to our
ESG disclosures at the end).

The share of Percentage Percentage of

global GDP of people people who say the
80% generated in 56% living in cities 65% pandemic made
cities them think of their
life purpose

Source: McKinsey, World Bank, HSBC Global Private Banking as at 22 November 2023.

22
 Global Private Banking

Societies are dynamic entities that Consumers are rapid adopters of health monitoring devices
undergo constant change and evolution
over time. If one thinks of the world that 70 % of people using smartwatch to measure…
one lived in when they were a teen, or 60
how our children or nieces and nephews 50
sometimes make us feel like we come 40

%
from another planet. 30
Some of those changes are linked to 20
technological innovation, which we 10
already exploit through our ‘Disruptive 0
Steps per Workouts Heart Sleep Calories Stress
Technology’ trend and is all about what day health quality levels
we are able to do. Our society is also
changing because it needs to adapt to Source: Deloitte, HSBC Global Private Banking as at 22 November 2023.

and halt Climate Change – something we

absolutely have to do. But under our new related to consumption trends, the silver 2050 according to the UN, with most of
‘Evolving Society’ trend we mainly look economy, NextGen, social inclusion and the growth coming from the emerging
at what we want to do and how we want health innovation. markets.
to live. For now, we focus on three themes That will involve 1.2mn km2 of new
What we value and care about most is which we believe are topical, investable, urban build-up area by 2030.
influenced by our culture and traditions, and offer medium term return potential. Our Healthcare Innovation theme
of course, but it is not set in stone. extends our existing US healthcare
Infrastructure and Future Cities
Gender roles continue to evolve; social theme into a global approach, and
media influences how we engage with The pandemic has changed the way takes a more structural and long
others; fashion and body image ideals we think about city living and term approach. Demand for obesity
have shifted; food and dietary choices urbanisation. It raised challenges and and diabetes drugs for example is
continue to broaden and include more new ideas about innovation in well- rising strongly. Medtech innovation is
sustainable options; attitudes towards being, mobility, infrastructure, housing accelerating, with AI helping speed up
the elderly put greater emphasis on and work practices. diagnostics and drug development. No
active aging and inclusion, etc… the list To be successful, cities that are truly wonder that many governments see life
goes on. built for the future need to consider sciences as a key growth area where
Some of these changes are slow- all of these aspects in their planning. they want to stimulate innovation. At the
moving: the move from an agricultural Connectivity is key, as many people same time, there is increased emphasis
society to city living for example has moved out of cities to greener areas on the sustainability and affordability of
been going on for millennia, but still during the pandemic, but now want healthcare services, both in developed
continues. Other changes however to commute back to work. That’s and emerging markets.
have been triggered by recent events. just one part of the important role Our third theme of Social
The COVID-19 pandemic of course of infrastructure. Communication Empowerment & Well-being overlaps
changed the way we lived, and some infrastructure, green spaces, flood with a number of UN Sustainable
of these changes have stuck. The defenses, education and healthcare Development Goals such as good health
way we work will probably never be facilities are all key aspects. Much and well-being, quality education and
the same, and hybrid work has a big of the focus will be on developing gender equality. Investor interest and
effect on real estate, transportation ‘smart’ cities, which use data gathering entrepreneurial innovation in this area
and communication. The pandemic and analysis to optimise traffic and are clear examples of the evolving
forced many of us to stand still, and energy consumption. society and what people care about.
realise how precious our health is, Cities account for 80% of global GDP. We believe investors can use an impact
which is translating in much increased Given global mobility and international or thematic approach to this theme, or
discretionary spending on home competition between economic blocks, even select companies that are making a
fitness equipment, health and wellness investment in cities is thus expected to positive transition to better social values
products and online fitness classes. be enormous in coming years. 4.2bn and practices. Please refer to our ESG
So, it is clear that our new trend is people already live in cities, and that disclosures at the back of this brochure.
broad in scope, and can include themes should rise to 5.2bn in 2030 and 6.7bn in

23
Global Private Banking Investment Outlook Report

Investing Ahead of
the First Fed Rate Cut
Amid slow DM growth, The US economy and US consumer are showing much resilience

where do we see Goods consumption Services consumption Fixed investment

12 Change in inventories Net exports Government spending
the best potential for 10
Gross domestic product

earnings expansion and 8

steady returns? And as 6

4
policy rates finally seem
%

2
to have peaked, where 0

are the best areas to lock -2

-4
in attractive bond yields? -6 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 2023

Source: US Bureau of Economic Analysis, HSBC Global Private Banking as at 22 November 2023.

Our Four High Conviction Themes

1. American Resilience ‘Don’t count out the US consumer’ is an adage that continues to apply. We are not too worried about
rising interest payments and high oil prices, as labour markets remain strong and falling inflation is
boosting disposable income. We also look bottom-up for resilience, selecting companies with solid
cash balances and strong market positions – typically called ‘quality’ stocks.

2. North American Many governments are intensifying their industrial policies to compete globally, but the US has
Re-industrialisation spent an enormous amount to bring back manufacturing. This helps accelerates 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.

3. Opportunities in Portfolio returns can benefit significantly from a steady income stream, which now is in the mid-to-
Quality Credit high single digits for quality credit. As Treasury and safe haven bond yields are near 5-year highs,
but credit spreads just close to the 5-year average, we do not take excessive credit risk. Amid slow
economic growth, quality credit tends to outperform, which means we favour investment grade.

4. D
 efensive Positioning In our selective search for yield, we like bonds issued by financials as they are attractively valued
Across DM Financials compared to corporates. But we focus on senior bank bonds as the yield pickup for subordinated
Bonds debt is not sufficient to compensate for slow growth and the gradual rise in loan loss provisions.

US corporates’ Linked to Percent of time that

cash on hand 350,000 re-onshoring in investment grade
$3.4trn or in money new US 2022, compared 95% bond yields were
market assets jobs to 265k in 2021 below current level
in past 20 years
HSBC Global Private Banking, Federal Reserve, reshorenow.org, Bloomberg as at 22 November 2023.

24
 Global Private Banking

At first glance, a world with low growth stream of positive economic surprises in Opportunities in Quality Credit
and high interest rates does not sound 2023. Consumption therefore has defied We maintain our overweight in
like a very favourable investment investors’ fears that high oil prices and investment grade and developed market
environment. Yet, on both counts, there interest rates would start to bite. In fact, government bonds (except Japan, where
are some positive aspects. the latest GDP numbers show a re- yields are too low). Investment grade
Global growth is indeed slow, but for acceleration in consumption in Q3 2023, traditionally is one of the best performing
most countries around the world, Q4 both on goods and services. As a result, asset classes in an environment where
2023 or Q1 2024 should be the bottom we remain positive on the opportunities growth is slow but positive. We believe
of the economic cycle, after which we for consumer companies. that, the longer policy rates remain
expect a gradual acceleration. In the Of course, some more levered and elevated, the higher the risk of tightening
themes that follow, we will look for areas lower income households are feeling financial conditions. This would
of particular growth resilience. the squeeze, and may be choosing disproportionally affect high yield and
As for the rate environment, the recent lower cost options. And at the top end, hence we prefer investment grade.
central bank meetings in the US, UK and slow Chinese demand is impacting In addition, we see opportunities in
Eurozone have given us comfort that the some companies. Good stock picking financials, which we express through our
sharp series of hikes are now behind us. to select companies with the right theme of Defensive Positioning across
That should anchor the ‘front end’ of positioning and strong fundamentals is DM Financial Bonds. Banks are facing
the yield curve (short maturities), while therefore important. the headwinds of slow DM economic
at the longer end, the high real yields Lower income households are trading growth, increasing delinquencies (albeit
now provide generous compensation down though, so we pick stocks from a low level) and stress in real estate
for bond supply concern. Credit spreads with the right positioning and strong (especially offices). That said, capital
however are not overly generous, and in fundamentals. ratios for the sector are well above the
the slow growth environment, we think it Our North American Re- minimum regulatory requirements and
is wise to stick to quality for now. industrialisation theme recognises interest income is strong. In addition,
So all of our themes under this trend that manufacturing has probably spreads are attractive when compared to
look for quality and resilience, across the bottomed and may be starting a non-financials. So we find opportunities
equity and bond markets. structural uptrend. This is mainly due but go for large diversified businesses
to companies’ urge to re-onshore some and focus on the senior part of the bank
American Resilience production, as they want to make supply capital structure as the yield pickup of
Starting with the choice of geography, chains more reliable. And it is further Tier II is generally not very generous.
we remain of the view that the US helped by government incentives for
economy is more resilient than most manufacturing and R&D.
other markets. This has served US stock For example, in the one year since
performance in 2023 and we think this the CHIPS & Science act was signed
will remain the case in 2024. into law, companies have announced
Strong labour markets have been the over $166 billion in manufacturing
main source of US economic resilience in semiconductors and electronics
and explain much of the almost constant according to the White House.

Bond yields are near historical highs, providing an attractive income

component to diversified portfolios

10 US 10-year Treasury yield US Investment Grade yield US CPI

4
%

-2
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable indicator of
future performance.

25
Global Private Banking Investment Outlook Report

Equities
As we enter a new year, several US equities: Resilience and ® Second, North American Re-
high probability events must be Re-Industrialisation Industrialisation is just beginning.
accounted for. Concerns over slower Corporate investment in new
After enduring the most aggressive
global economic growth are offset manufacturing facilities to secure
monetary policy tightening cycle in
by continued disinflation supporting supply chains is quite strong.
decades, the US economy is set to
margins. Peak policy rates (followed ® Third, rapid Healthcare Innovation
slow in 2024. Corporate and household
results in product launches in the rare
by cuts later in 2024) provide some balance sheets were refinanced in disease and under-penetrated dental
breathing space, while structural 2021 and remain healthy, even though markets, and an expanding diagnostics
factors should also help markets. they are under pressure due to higher market thanks to new disruptive
Therefore, we remain constructive interest rates and restarting student technologies.
on equities with a focus on the loan payments. Corporate earnings ® In 2024, the technology sector
US, EM Asia and Latin America. are forecast to rise meaningfully next will continue to release many new
We remain focused on quality year and US markets have historically technologies that will lift productivity
and large cap and maintain a mild outperformed in the twelve months and the return on invested capital.
cyclical position in the US but a mild following a Fed pause. The cyclical Moreover, this will provide more
defensive one in Europe. headwind will be countered by several disflation in the US economy, which
secular themes that should provide could help drive equity market
valuations higher.
tailwinds for US markets in 2024.
Overweight
® First, the theme of American
Markets: US, Mexico, Brazil, France, Resilience remains firmly in place as
India, South Korea and Indonesia the US economy has more momentum
than the rest of the world and labour
Sectors: IT, Industrials, Consumer markets are strong.
Discretionary, Financials, Healthcare
Earnings for 2024 are expected to rebound
and Energy
25%
Underweight EPS YoY % change

Markets: Germany, Italy, Spain, South

20%
Africa, Thailand and Malaysia
Consensus earnings

Sectors: Real Estate

15%
Global style bias

Quality and Large Cap 10%

5%

0%
MSCI Europe S&P 500 MSCI China Nasdaq Dow Jones MSCI EM Asia

Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023.

26
 Global Private Banking

Asian consumerism Europe looks abroad Investment Summary

Asia remains key to prospects In Europe, valuations are attractive, Volatility in financial markets will
for economic growth in 2024. but growth remains elusive, and remain next year due to cyclical and
Expectations for Chinese growth earnings downgrades are possible. geopolitical uncertainties. Global
remain steady and investors will Inflation remains a concern and equity investors will also face other
take a wait-and-see approach in central banks must be vigilant. In issues like divergent economic
our view, in spite of low valuations addition, tail risks are more elevated growth rates and the unknown effect
and low consensus expectations. than in the US due to Europe’s of high rates on funding costs and
By contrast, forecasts are for even energy deficit and its proximity to availability. Quality remains key in
faster growth in India and solid two devastating wars. uncertain times, so we focus on
trade flows within the region. Organic domestic growth is still companies with strong balance
Corporate earnings are expected to lacking in Europe. For equity markets sheets and cash generation. That
rebound meaningfully in 2024 for to rebound meaningfully, European said, the potential of lower policy
EM Asian markets. companies must continue to look and market rates, combined with
Asian consumerism remains an abroad. A large percentage of prospects of well above-trend
important thematic focus for us European earnings originate in other earnings growth next year, suggests
in the region. Many economies regions of the world, and European good equity market returns.
are growing quickly. Increasing markets remain quite global. Growth
trade flows and rising per capita and trade flows are likely to remain
incomes are providing further anemic next year, dimming the
opportunities for equity investors. prospects for European markets.
Economic growth in India is
expected to accelerate in 2024. The
diversification in its manufacturing
and services sectors provide
upside. Throughout the region,
the reshaping of Asia’s supply
chain is lifting economic growth in
several markets and providing more
diversified opportunities throughout
the region.

27
Global Private Banking Investment Outlook Report

Fixed Income
The price action in bond markets expect credit spread volatility to pick up
has been remarkable over the Overweight in the coming months, catching up with
past two months. We initially the current environment of tightening
Government bonds: US, UK,
witnessed a surge in DM sovereign credit conditions, stretched valuations
Australian and New Zealand
bond yields due to concerns over and weakening growth momentum.
government bonds
excessive US budget deficits and Amid this backdrop, we decided to
their resulting funding needs. Credit and EM: US, European and reduce risk in our bond allocation by
Additionally, a hawkish statement UK IG; Australian and New Zealand downgrading EM Local Currency Debt to
from the September FOMC meeting corporate bonds; GCC and Mexican a mild underweight.
left the door open for an additional Hard Currency bonds; Indian Local
Global High Yield (HY) has so far
hike in December, creating more Currency bonds
outperformed other bond segments,
uncertainty. This door, however, was despite tight valuations, a high interest
seemingly closed in early November, Underweight
rate environment and increasing risks
when Chairman Powell indicated to economic and earnings growth. The
Government bonds: Japanese
that the peak in policy rates has relatively short duration of high yield
government bonds
been reached. Reduced uncertainty has been an advantage so far, but
around global monetary policy Credit and EM: Argentinian and can’t explain all of the difference. The
compressed the term premium and Ukrainian Hard Currency bonds; distant wall of bond maturities (2025-
caused government bond yields to Turkish Local Currency bonds 2026) could justify currently stretched
fall sharply in November. HY valuations, as well as a low realised
This is aligned with our investment October 2023 and increased the duration default rate; yet these are backward-
strategy and way of thinking: the surge target on all DM government bond looking indicators in our opinion.
in US real yields, which captured most markets under our coverage, except Therefore, we continue to believe that
of the term premium, went too far at this Japan. The November rally comforts us Global HY is quite expensive relative to
late cycle stage of the global economy, that the next big movement in yields is both future economic prospects (even
but also relative to the lower levels of likely to be downwards. in a US “soft landing” scenario) and to
other DM sovereign real yields. We thus Global Investment Grade (IG), especially
We continue to focus selectively on
took advantage of the surge in yields in in USD.
quality credit across DM and EM, as we

28
 Global Private Banking

Developed Markets - The peak in nominal economic growth rate projected bonds and therefore the opportunity
DM policy rates has been reached by the Fed over the long run, which cost of buying longer-dated bonds and
and Government bond valuations is a rare occurrence. While the rate locking-in yields has receded.
look attractive outlook over the short-term is difficult to Bonds should also be helped by our
Currently at 4.6%, long-term rate forecast, we believe that current levels of view that the policy rate peak has been
expectations such as the 5-year yields represent an attractive entry point reached across DM economies. The
US Treasury yield in 5 years (5Yr- and this justifies our recent increase Fed cited that the higher term premium
5Yr Forward), are already pricing of duration targets to 7-10 years for all embedded in US Treasury yields is
in a generous risk premium for the DM government bond markets, except tightening financial and credit conditions
uncertainty around the economic and Japan. In addition, the normalisation in the US and having an impact similar
fiscal outlook. In addition, this level (disinversion) of the yield curve is to additional interest rate hikes. Hence,
of rates stands 80bps or so above the reducing the appeal for short-dated markets are doing some of the work
for the central banks, allowing them to
The surge in US Treasury yields was mainly driven by Real Rates
adopt a wait-and-see mode.
6 10Yr UST Yield 10Yr Breakeven Rate 10Yr UST Real Yield
Interestingly, previous worries about
5 fiscal deficits and bond supply eased
when the US Treasury unexpectedly
4
projected a moderate quarterly refunding
3 rate in early November, mostly in longer-
dated tenors. Funding a large part of
2
%

the deficit through bill issuances would

1 alleviate some of the supply pressure
0 for longer dated bonds. In fact, we
think investors had overreacted to the
-1 supply concerns and the deficit outlook,
-2 which have been well known by market
Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23 participants for some time.
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
indicator of future performance.

29
Global Private Banking Investment Outlook Report

What is the resulting asset allocation sensitive credit spreads to pick up in Theme on DM Financials but focus
across bond markets? the coming months. As highlighted in exclusively on Banks’ Senior Unsecured
Global investment grade (IG) continues to the chart below, the level of risk-free debt. When comparing Financial to
be our largest overweight and absolute rates represents almost 80% of the US Non-Financial corporate bonds, the
yields remain attractive, against a IG nominal yields and therefore should credit spread ratio remains appealing,
backdrop of declining inflation and peak benefit from steeper price appreciation if supporting our preference for Financials.
policy rates. In addition, our focus on our view of lower rates materialises. At the corporate level, we continue
quality corporate credit at the “belly” of In terms of sectors, we continue to focus to focus on quality companies which
the yield curve (i.e. 5-7 years) resonates on Energy, Technology and Financials. prioritise bondholder-friendly policies,
well in the context of the late economic Following the repricing in the Banking have sound leverage ratios and lower
cycle. While a US recession is not our sector in March, we continue to favour short-term refinancing needs.
core scenario, the risks have increased bonds issued by financial institutions.
and we expect the volatility of growth- As such, we reiterate our High Conviction

Risk-free Rates represent a large part of US IG Yields

US IG Spread
6

US Treasury Yield
5

4
%

0
Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
indicator of future performance.

30
 Global Private Banking

Financial bonds continue to offer value relative to Non-Financials their local rate market allocation to a
50 neutral from a mild overweight stance.
Thus, local rates are likely to see a
40 Spread between US Financials and US Non-Financials rebuilding of risk premia in our view.
In addition, technicals appear to be
30 Average
less supportive considering material
20 mutual fund outflows since the end of
Basis points

July. Such redemptions are forcing fund

10 managers to increase cash balances at
the detriment of their bond allocation,
0 adding more pressure to local debt
markets. Should the global economy
-10
continue to slow down and experience
-20 bouts of volatility along the way, the
defensive aspect of the US dollar could
-30 weigh on EM FX performance. Indeed,
Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23 EM FX has generally driven weakness
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable for the EM LCD returns in the past.
indicator of future performance.
As for the rest of our EM bond allocation,
Emerging Markets - We reduce risk towards a neutral stance and subsequent we keep the current neutral exposure on
by downgrading EM Local Currency fall in US Treasury yields. In essence, EM hard currency sovereign bonds and
Debt to a mild underweight higher DM rate volatility and US Treasury a mild overweight on corporate bonds
amid a weakening global growth real yields, a stronger US dollar and a in hard currencies. Their performance
momentum, a stronger US dollar slower pace of disinflation across EM has been generally aligned with Global
and challenging technicals economies, have all been detrimental IG, yet has underperformed Global
EM Local Currency Debt (LCD) to EM LCD market performance of late. HY markets so far this year though
performed well between October 2022 With a rise in geopolitical risks, market differences in duration play a big role.
and July 2023. A weaker US dollar drivers have shifted from domestic to Overall, EM corporate bonds continue
allowed investors to look beyond the global factors. We also notice that a to exhibit a strong carry opportunity
last cyclical rate hikes in EM economies reassessment of policy rate expectations and bring diversification across ratings,
during this period and to position for the is materialising across EMs, with fiscal sectors & countries. Hence, we remain
start of easing cycles in countries such slippage and bond supply-related risks comfortable retaining a modest
as Brazil, Chile and Hungary. However, rising in some countries such as Brazil overweight stance, with a focus on
this backdrop has changed since July, and Mexico. We take this opportunity quality corporate issuers within the Asia
even after factoring in the FOMC’s tilt to reassess our views on these two and LatAm regions.
economies and decide to downgrade

31
Global Private Banking Investment Outlook Report

Currencies and
Commodities
The US dollar has traded higher The US dollar recorded strong positive for USD. In the run-up to the November
through 2023, supported by performance in 3Q23, but is still well Presidential elections, milestones such
high US Treasury yields, US below its high of October 2022. The as the primaries can create some more
economic outperformance and key drivers have not changed and volatility. USD typically benefits from
global uncertainties linked to the remain threefold: uncertainty, but we think that other
devastating conflict in the Middle ® US cyclical outperformance: the fundamentals such as US growth and
East. While the US dollar should US economy should remain among the rate outlook will remain the key
continue to be supported by these the most resilient in G10, even though drivers for USD.
factors as we move into 2024, we the speed of growth will be below the Meanwhile, EUR should remain
think the risk to this bullish view 2023 level.
challenged over the next few months.
will increase in the second half ® Yield advantage: investors will try to
But as quarterly growth figures could
of 2024. We are selective on EM assess whether the Fed cuts earlier or
find a bottom, that weakening trend
currencies as tight global financial later than other G10 central banks. In
could stall in coming months. In the UK,
our core scenario, the Fed could lead
conditions are increasing downside the challenges are stickier and could
other central banks by a few months,
economic risks for EM. We prefer therefore weigh on GBP for longer.
and the rate differential will therefore
currencies with strong fundamentals CHF should continue to benefit from
narrow a bit. Nevertheless, that
and substantial real yields (e.g. BRL differential is currently substantial and encouraging domestic drivers, but for
and INR), allowing central banks to should support USD in early 2024. JPY, we see upward potential only in
cut rates where needed. We do not ® Risk environment: Coming to the case of a sustainable change in the
expect commodities to be a major risk environment, the Israel-Hamas monetary policy. As for the rest of G10,
drag on FX in 1Q24, but any oil price war has added to the already quite it is hard to see strong momentum on
spikes linked to geopolitical events uncertain global landscape, supporting AUD, NZD and CAD, although upside
would affect global risk appetite and demand for safe-havens and therefore could come from an oil price spike or
could impact global growth. helping the greenback. positive surprises on Chinese growth.

We do not expect these factors to In Emerging Markets, we remain

Bullish quickly reverse in 2024; hence, before selective as we move into 2024.
the dollar stalls, one of the above factors Domestic drivers will be key, with
In G10: USD needs to lose steam. For example, a a focus on solid current accounts
In EM: INR, BRL and MXN negative growth surprise in the US and external balances. We also like
could lead to a more rapid dovish path currencies offering a large yield
Neutral from the Fed. At the same time, a advantage as they provide good carry
large drop in economic figures could opportunities and leave room for the
In G-10: CHF, JPY, CAD, and AUD central banks to cut rates if needed (e.g.
also trigger a risk-off environment,
In DM and EM: SGD, RMB, IDR, which would ultimately support USD. BRL and INR). Lastly, when China picks
KRW, PHP and THB Therefore, we, for the time being, see up later in 2024, there could be support
Commodities: Gold, Silver, and Oil a risk of a plateauing USD at the most, for the currencies of its main trading
but quite low risk of a downward trend partners, especially given current low
Bearish expectations. Meanwhile, we dislike

In G10: EUR, GBP and NZD

In EM: ZAR and TRY

32
 Global Private Banking

ZAR and TRY as domestic challenges The typical negative correlation between USD and Gold has not held back
are high. In South Africa, structural gold much recently as USD has lost some steam
headwind intensifies due to the wide 120 DXY Index (LHS ) Gold price (RHS) 2,200
current account deficit and mounting
fiscal uncertainties ahead of the general 115
2,000
elections. In Turkey, the twin deficit
coupled with the sizeable negative 110
real rate will continue to weigh on the 1,800

currency although recent aggressive 105

USD/oz
tightening from the Central Bank could 1,600
lead to a faster monetary rebalancing. 100
In the commodity space, gold has been 1,400
remarkably resilient, but we find it hard 95

to be positive amid high real yields and a

90 1,200
strong dollar. A flattening USD, rate cuts
and lingering uncertainties could provide
support later in 2024. Silver and PGMs 85 1,000
Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23
could benefit from a rebound in China’s
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
manufacturing sector coupled with indicator of future performance.
greater interest in green technologies,
but the strong USD remains an obstacle
for now. Meanwhile, the oil market will Although they are both considered safe havens, CHF and JPY have been
remain tight due to extended supply relatively unsynchronized in 2023. JPY is currently strongly linked to Japan’s
cuts. But given the remarkable low price monetary policy
despite the conflict in the Middle East, 1.03 USD/CHF Exchange rate (LHS) 160
we believe any strong rally would require USD/J PY Exchange rate (RHS)
an improvement in demand. But with 1.01 150
Chinese demand already above pre- 0.99
140
pandemic levels, and the winter season
coming up, we do not see much scope 0.97
130
for a further pickup in demand. 0.95
120
0.93
110
0.91
100
0.89

0.87 90

0.85 80
Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23
Source: Bloomberg, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
indicator of future performance.

33
Global Private Banking Investment Outlook Report

Hedge Funds

Throughout 2023, the hawkish same asset class from a relative value and the start of rate cuts somewhere
rhetoric of the Fed has been a perspective. Consummation of the during the second half of the year.
headwind for bonds and equities, elusive opportunities available within The ability of macro managers to operate
though the end of the rate hikes merger arbitrage supported event driven with full flexibility during these uncertain
provided relief recently. Hedge fund allocations. Specialisation in structured times should serve the strategy well
portfolios generally proved their credit sub strategies protected during 2024. It was the strongest group
diversification characteristics this alternative credit managers from the representing a single strategy in terms
year, and seeking such diversified losses incurred by traditional credit of contribution to returns during the
sources of return represents a managers. Equity long/short managers’ last full quarter with the opportunity set
perennial investment objective performance was aided by short expanding into emerging market themes
of our client-base. We maintain a positioning cushioning losses during over the period. In addition, as 2020
positive view on macro managers, periods of market weakness. demonstrated, managers in this sector
equity market neutral strategies, While a well-managed hedge fund can generate outsized returns under a
equity long/short with low net solution is designed to elicit returns falling rate environment, so we would
exposure, multi-strategy and multi- throughout the cycle, we are cognisant expect to see a greater proportion of
PM managers. that macro-economic scenarios affect returns emanating from directional
Returns from trend-followers have return opportunities for different rates positioning in 2024 compared to
recently been predominantly led strategies. Our hedge fund strategy 2023. We retain our positive outlook for
by short fixed income positioning. views are predicated on a forecast for the strategy.
Meanwhile discretionary macro some persistence of choppy markets In addition to the short, fixed income
managers have successfully traded the going into 2024, slow economic growth positioning mentioned above, many

34
 Global Private Banking

CTAs elicited performance from set we favour low net exposure Credit long/short managers have
agricultural contracts and other approaches with a mildly positive sourced their returns from a combination
commodities most recently, highlighting forecast for returns for next year. of high carry, structured credit
their diversification credentials. We maintain our outlook for variable positioning and in certain circumstances
Mindful of the difficulty in accurately net strategies at neutral as the stock the resolution of a small number of
predicting a prevalence of trends picking environment continues to offer distressed situations. The emergence
across asset classes we retain a opportunities. Our downgraded mildly of the default cycle is proving more
neutral outlook on CTAs’ performance underweight outlook for Asia focused elusive in terms of timing than previously
credentials going forward. strategies is premised upon a relatively expected so we remain neutral on
For equity market neutral strategies our flat Chinese growth environment, distressed specialists, the same for
mildly overweight view is supported delaying a strong recovery for the region. credit long/short while we are more
by the observation that single stock We maintain our outlook at neutral constructive on structured credit.
correlations are low on a historical basis. for event driven. Activist campaigns We maintain our positive view on the
While market volatility has fallen steadily continue to be popular with managers operating environment for Multi-Strat
this year, managers expect it to pick up and investors alike fanned by the and Multi-PM managers looking ahead
as we get further into the high for longer necessity for companies to find through 2024. This is premised on their
interest rate regime. synergies in a non-zero interest rate strong risk management principles and
Equity long/short managers were environment. This is tempered by M&A their ability to hire the best talent. Index
heartened by the wider opportunity set activity remaining sparse and spreads rebalancing and commodity strategies
offered with the recent emergence of narrowing markedly on resolution of were good contributors to return
choppier markets. Within the strategy anti-trust risk on bigger deals recently. opportunities over the summer.

35
Global Private Banking Investment Outlook Report

Real Estate
Real estate capital values in grow as rents paid by tenants gradually
developed markets are declining mark to market. Moreover, where
due to higher interest rates leases are indexed to inflation, cash
impacting property yields. Occupier flows and capital values benefit from a
fundamentals have remained degree of protection.
resilient, except for offices, Logistics has undoubtedly seen a sharp
keeping vacancy rates below trend pullback in leasing activity. Some of this
in aggregate. Rental growth is is because of a drop in build-to-suit
moderating, but indexed leases construction, as developers cannot
provide protection. Logistics profitably develop due to the high cost of
and multifamily residential development finance. In addition, the
sectors maintain low vacancy pullback in online spending has
rates. Retail faces ongoing impacted the demand for space from
e-commerce challenges, and we online retailers and third-party logistics
expect further price corrections, providers. However, leasing demand,
particularly in a recession. though coming off record levels
Real estate capital values continue experienced in the last three years, is
to decline across developed property still roughly in line with the pre-
markets as property yields rise to reflect pandemic level, which was already at
higher interest rates. Value declines have multi-decade highs. Vacancy rates are
been widespread, though they have rising but remain historically low, and
varied by geography and sector. The rental growth remains positive, which
sharpest declines have been in Europe will continue to support healthy
and North America, whilst values have positive net income growth as leases
been relatively stable in Asia-Pacific. mark-to-market.
By sector, values have fallen furthest Similarly, vacancy rates in multifamily
for those sectors, such as logistics and residential property remain near multi-
residential, where real estate yields also decade low levels. Higher interest rates
declined the furthest when interest rates have pushed homeownership out of
were low. When interest rates moved reach for many, whilst the trend to
back out, the impact was more dramatic remote working has triggered a long-
on lower-yielding assets than on those term pick up in household formation as
with higher yields. renters devote spare rooms to an office
Those declines in property values instead of an extra flatmate. Whilst new
would have been more severe if construction activity was elevated in
not for the widespread resilience of some sunbelt markets in the US, it has
occupier fundamentals over the last generally been restrained and is now
12-months. Though leasing demand has declining in most markets, due to the
undoubtedly moderated across most rising cost of construction (materials,
sectors as occupiers delay plans to labour, and financing).
expand or invest in new space, a decline Retail fundamentals were under pressure
in development activity has ensured prior to the pandemic as growing
that vacancy rates, in aggregate, remain demand for ecommerce hit traditional
below the long-run average. Rental retailers, particularly department stores
growth may be moderating from recent and fashion retailers. The early months
highs, but incomes are continuing to of the pandemic saw vacancy rates

36
 Global Private Banking

peaking as struggling retailers filed may limit the amount of space handed
for bankruptcy, vacating many stores. back by tenants shifting towards hybrid
However, as restrictions have been working practices. Occupiers are
eased, shoppers have returned, and the increasingly focussed on high quality,
empty stores have been backfilled by environmentally sustainable offices
profitable expanding brands and food in the best locations. This is driving a
and beverage occupiers. bifurcation in rental performance (and
E-commerce remains an ongoing capital values) between prime and
headwind for retailers which struggle to average buildings.
integrate online retail into their in-store Looking ahead, the majority of any
offerings. In addition, the short-term further price correction is expected to
economic headwinds created by higher be due to rising property yields as the
interest rates are anticipated to exert spread between borrowing costs and
pressure on household budgets as property yields may not be sufficient
people lose their jobs and pandemic to restore liquidity. Should economies
savings are depleted. However, for the fall into recession, then occupier
top locations, strong leasing demand fundamentals can also be expected to
is supporting rising occupancy and soften and we may see a secondary
(gradually) improving rental levels. wave of value declines in some markets,
The office sector has the most particularly for the cyclically vulnerable
challenging backdrop as the cyclical office and retail sectors, as happened
economic pressures have come at a after the Global Financial Crisis (GFC).
time when vacancy rates were already In general, we expect the correction
elevated. Still, a growing number of in capital values to be over halfway,
businesses are encouraging their although this will vary depending on
employees back to the office which region and property type.

Low vacancies should provide some support, except for offices

16 Retail Office Logistics Residential

14

12
Vacancy rate (%)

10

0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: MSCI, HSBC Global Private Banking as at 22 November 2023.

37
Global Private Banking Investment Outlook Report

Private Markets
Private equity and venture capital expected. Investors still committed themselves to take a more proactive
markets have experienced a significant sums to private equity stance. Should we move towards more
slowdown in activity in 2023. In funds in 2023. While some investors of a recessionary environment, it is likely
the US, exit values hit an air pocket had to rebalance portfolios away from that we will see additional volatility in
in Q3, falling 40.7% from the prior alternatives after bonds and equities private equity markets. This, in turn,
quarter to its lowest quarterly level dropped in 2022 (the ‘denominator would reduce investment volume in the
since the global financial crisis effect’), rising public equity markets in short term. However, over time, that
(GFC)—excluding the lockdown 2023 have reduced this impact. As a would probably reverse, as the
of Q2 2020—and are now down result, while the focus remains on larger resulting lower interest rates in this
83.7% from the Q2 2021 peak1. funds, private equity fundraising has scenario would lower borrowing costs.
This significant hit to activity also remained relatively solid, with $618bn This should increase investment
impacts distributions back to raised in the year to October 2nd. This is activity in H2 2024 and into 2025, when
investors. Private credit remains a above the annual average between 2010- 2024’s primary commitments are likely
popular asset class as the supply / 2020 of $549bn. It is, however, likely to to be deploying.
demand imbalance creates attractive struggle to hit the $949bn average of One impact the current higher rate
conditions for investors. 2021 and 2022, when market activity environment has had thus far, and
Since the 2021 peak, weaker was at its peak. should continue to have, is to widen the
distributions have negatively impacted While higher rates are having an impact performance gap between winners and
fundraising for private equity – although on exit volumes and valuations, many losers. For more recently closed funds,
to a lesser extent than might have been investors could be positioning the gap between the top and bottom

Private Equity exit activity is low but we expect it to pick up in 2024

$1,000 Exit value Exit count (RH S) 2,100

$900
1,900
$800
1,700
$700
1,500
$600
USD billion

number

$500 1,300

$400
1,100
$300
900
$200
700
$100

$0 500
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Pitchbook, HSBC Global Private Banking as at 22 November 2023.

38
 Global Private Banking

decile has never been wider. While funds record of employing other levers to Despite 2023 challenges, we believe the
from 2021 and 2022 vintages are still in generate value for investors by private equity asset class is poised to
their relative infancy, this dispersion in redefining operational processes, raising thrive in 2024. LPs have a more positive
performance is to be expected. However, efficiency with new tools, seeking new outlook for 2024, with 71% believing
it does highlight the importance of areas of growth or focusing on higher that 2024 will represent a strong vintage
selecting the ‘right’ manager. earnings growth. (source: Coller Capital), which may
Throughout 2023, interest rate payments While global secondary volume for the suggest a continued approach on their
spiked to a 16-year high, which resulted first half of 2023 commitments declined part to committing new capital. We
in PE-backed company leverage being 25% to $43bn from the record levels in continue to believe in the benefits of
at a 13-year low. Investors could be H1 2022 of $57bn2, this remains a key disciplined deployment into the private
concerned about whether GPs in the conviction for us going into 2024. LP equity asset class, through a high-
current high interest rates environment secondaries volume fell as we continue conviction approach and consistent
can access leverage to support value to see little distressed selling from vintage diversification. In 2024 we expect
creation, but higher interest rates might investors and the denominator effect to see a competitive buyer’s market with
not be necessarily all negative: when also lessened in H1 2023 due to rising deal making and exit activity picking up
access to credit is easier, acquirers may public markets valuations. Overall, the along with a growing slate of mature
bid up purchase prices leading to lower bid ask spread has narrowed in H1 2023 assets coming to market. We expect
potential future returns for the vintage. and we expect similar trends through therefore in turn to see a normalisation
In 2024, we will continue to focus on PE H2 2023 and H1 2024 as pricing of distributions to investors over the
firms that have demonstrated a track continues to stabilize. medium term.

Dispersion of Private equity IRRs is exceptionally high currently

Top decile Top quartile Median IRR Bottom quarti le Bottom decile
60%

50%

40%

30%

20%
IRR (%)

10%

0%

-10%

-20%

-30%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Pitchbook, HSBC Global Private Banking as at 22 November 2023. Past performance is not a reliable
indicator of future performance.

1.
Pitchbook, as of October 2023
2.
Jefferies, H1 2023 Global Secondary Market Review, as of July 2023

39
Global Private Banking Investment Outlook Report

Risk Disclosures
Risks of investment in fixed income statutory bail-in) whereby a national resolution au- invested (cash drag) and for invest-ments to produce
thority writes down or converts debentures under returns after initial losses.
There are several key issues that one should consider specified con-ditions to common stock. Bail-in
before making an investment into fixed income. The debentures generally absorb losses at the point of Risk disclosure on Emerging Markets
risk specific to this type of invest-ment may include, non viability. These features can introduce notable
but are not limited to: Investment in emerging markets may involve certain,
risks to investors who may lose all their invested additional risks which may not be typically associated
Credit risk princi-pal. with investing in more estab-lished economies and/
Contingent convertible securities (CoCos) or bail- or securities markets. Such risks include (a) the risk of
Investor is subject to the credit risk of the issuer. nationalisation or expropriation of assets;
Investor is also sub-ject to the credit risk of the in debentures are highly complex, high risk hybrid
government and/or the appointed trustee for debts capital instruments with unusual loss-absorbency (b) economic and political uncertainty; (c) less
that are guaranteed by the government. features written into their contractual terms. liquidity in so far of securities markets; (d) fluctuations
Investors should note that their capital is at risk and in currency exchange rate;
Risks associated with high yield fixed income
instruments they may lose some or all of their capital. (c) higher rates of inflation; (f) less oversight by
Changes in legislation and/or regulation a regulator of local securities market; (g) longer
High yield fixed income instruments are typically settlement periods in so far as securities transactions
rated below invest-ment grade or are unrated and Changes in legislation and/or regulation could and (h) less stringent laws in so far the duties of
as such are often subject to a higher risk of issuer affect the performance, prices and mark-to-market company officers and protection of Investors.
default. The net asset value of a high-yield bond fund valuation on the investment.
may decline or be negatively affected if there is a Risk disclosure on FX Margin
default of any of the high yield bonds that it invests in Nationalisation risk
or if interest rates change. The spe-cial features and The price fluctuation of FX could be substantial
risks of high-yield bond funds may also include the The uncertainty as to the coupons and principal under certain market conditions and/or occurrence of
following: will be paid on sched-ule and/or that the risk on the certain events, news or developments and this could
ranking of the bond seniority would be compromised pose significant risk to the Customer. Leveraged FX
• Capital growth risk - some high-yield bond funds following nationalisation. trading carry a high degree of risk and the Customer
may have fees and/ or dividends paid out of capital. may suffer losses exceeding their initial margin funds.
As a result, the capital that the fund has available Reinvestment risk Market conditions may make it impossible to square/
for investment in the future and capital growth may A decline in interest rate would affect investors as close-out FX contracts/options. Customers could
be reduced; and coupons received and any return of principal may face substantial margin calls and therefore liquidity
be reinvested at a lower rate. Changes in interest problems if the relevant price of the currency goes
• Dividend distributions - some high-yield bond against them.
funds may not distribute dividends, but instead rate, volatility, credit spread, rating agencies actions,
reinvest the dividends into the fund or alternatively, liquidi-ty and market conditions may have a negative The leverage of a product can work against you
the investment manager may have discretion on effect on the prices, mark-to-market valuations and and losses can exceed those of a direct investment.
whether or not to make any distribution out of your overall investment. If the market value of a portfolio falls by a certain
income and/ or capital of the fund. Also, a high Risk disclosure on Dim Sum Bonds amount, this could result in a situation where the
distribution yield does not imply a positive or high value of collateral no longer covers all outstanding
return on the total investment. Although sovereign bonds may be guaranteed by the loan amounts. This means that investors might have
China Central Government, investors should note that to respond promptly to margin calls. If a portfolio’s
• Vulnerability to economic cycles - during economic unless otherwise specified, other renminbi bonds will return is lower than its financing cost then leverage
downturns such instruments may typically fall not be guaranteed by the China Central Government. would reduce a portfolio’s overall performance and
more in value than investment grade bonds as (i) even generate a negative return.
investors become more risk averse and (ii) de-fault Renminbi bonds are settled in renminbi, changes in
risk rises. exchange rates may have an adverse effect on the Currency risk – where product relates to other
value of that investment. You may not get back the currencies
Risks associated with subordinated debentures, same amount of Hong Kong Dollars upon maturity of
perpetual debentures, and contingent convertible the bond. When an investment is denominated in a currency
or bail-in debentures other than your local or reporting currency, changes
There may not be active secondary market available in exchange rates may have a negative effect on your
• Subordinated debentures - subordinated even if a renminbi bond is listed. Therefore, you need investment.
debentures will bear higher risks than holders of to face a certain degree of liquidity risk.
senior debentures of the issuer due to a lower Chinese Yuan (“CNY”) risks
priority of claim in the event of the issuer’s Renminbi is subject to foreign exchange control.
liquidation. Renminbi is not freely convertible in Hong Kong. There is a liquidity risk associated with CNY products,
Should the China Central Government tighten the especially if such investments do not have an active
• Perpetual debentures - perpetual debentures often control, the liquidity of renminbi or even renminbi secondary market and their prices have large bid/
are callable, do not have maturity dates and are bonds in Hong Kong will be affected and you may be offer spreads.
subordinated. Investors may in-cur reinvestment exposed to higher liquidity risks. Investors should be
and subordination risks. Investors may lose all their CNY is currently not freely convertible and conversion
prepared that you may need to hold a renminbi bond of CNY through banks in Hong Kong and Singapore
invested principal in certain circumstances. Interest until maturity.
pay-ments may be variable, deferred or cancelled. is subject to certain restrictions. CNY products are
Investors may face uncertainties over when and Alternative Investments denominated and settled in CNY deliverable in Hong
how much they can receive such payments. Kong and Singapore, which represents a market
Hedge Fund - Please note Hedge Funds often which is different from that of CNY deliverable in
• Contingent convertible or bail-in debentures - engage in leveraging and other speculative Mainland China.
Contingent con-vertible and bail-in debentures investment practices that may increase the risk of
are hybrid debt-equity instruments that may be investment loss. They can also be highly illiquid, are There is a possibility of not receiving the full amount
written off or converted to common stock on not required to provide periodic pricing or valuation in CNY upon settlement, if the Bank is not able to
the oc-currence of a trigger event. Contingent information to investors, and may involve complex obtain sufficient amount of CNY in a timely manner
convertible debentures re-fer to debentures that tax structures and delays in distributing important due to the exchange controls and restrictions appli-
contain a clause requiring them to be writ-ten off or information. Alternative investments are often not cable to the currency.
converted to common stock on the occurrence of subject to the same regulatory requirements as, say, Illiquid markets/products
a trigger event. These debentures generally absorb mutual funds, and often charge high fees that may
losses while the issuer remains a going concern (i.e. potentially offset trading profits when they occur. In the case of investments for which there is no
in advance of the point of non-viability). “Bail-in” recognised market, it may be difficult for investors to
generally refers to (a) contractual mecha-nisms Private Equity - Please note Private Equity is sell their investments or to obtain reliable information
(i.e. cotractual bail-in) under which debentures generally illiquid, involving long term investments about their value or the extent of the risk to which
contain a clause requiring them to be written off or that do not display the liquid or transparency they are exposed.
converted to common stock on the occurrence of characteristics often found in other investments (e.g.
a trigger event, or (b) statutory mech-anisms (i.e. Listed securities). It can take time for money to be

40
 Global Private Banking

Environmental, Social and Governance (“ESG”) from your professional advisers as appropriate. You In Guernsey, this material is distributed by HSBC
Customer Disclosure should not make any investment decision based Private Banking (C.I.), which is the trading name
solely on the content of any document. of HSBC Private Bank (Suisse) SA, Guernsey
In broad terms “ESG and sustainable investing” Branch, with registered office in Arnold House,
products include investment approaches or HSBC Private Banking has based this document St Julian’s Avenue, St Peter Port, Guernsey, GY1
instruments which consider environmental, social, on information ob-tained from sources it believes 3NF. HSBC Private Bank (Suisse) SA, Guernsey
governance (‘ESG’) and/or other sustainability to be reliable, but which may not have been Branch is licensed by the Guernsey Financial
factors to varying degrees. Certain instruments independently verified. While this information has Services Commission for Banking, Credit, Insurance
we classify as sustainable may be in the process been prepared in good faith including information Intermediary and Investment Business. HSBC
of changing to deliver sustainability outcomes. from sources believed to be relia-ble, no Private Bank (Suisse) SA is registered in Switzerland
There is no guarantee that ESG and sustainable representation or warranty, expressed or implied, under UID number CHE-101.727.921, with registered
investing products will produce returns similar is or will be made by HSBC Private Banking or any office in Quai des Bergues 9-17, 1201 Geneva (GE),
to those which don’t consider these factors. ESG part of the HSBC Group or by any of their respective Switzerland. HSBC Private Bank (Suisse) SA is
and Sustainable investing products may diverge officers, employees or agents as to or in relation to licensed as a Bank and Securities Dealer by the
from traditional market benchmarks. In addition, the accuracy or completeness of this document. Swiss Financial Market Supervisory Authority
there is no standard definition of, or meas-urement FINMA. As a Branch of HSBC Private Bank (Suisse),
criteria for, ESG and sustainable investing or the It is important to note that the capital value of, and
income from, any investment may go down as well HSBC Private Bank (Suisse) SA, Guernsey Branch is
impact of ESG and sustainable investing products. supervised on a consolidated basis by FINMA.
ESG and Sustainable invest-ing and related impact as up and you may not get back the original amount
measurement criteria are (a) highly subjective and invested. Past performance is not a guide to future In Jersey, this material is issued by HSBC Private
(b) may vary significantly across and within sectors. performance. Forward-looking statements, views Banking (Jersey) which is a division of HSBC Bank
HSBC may rely on measurement criteria devised and opinions ex-pressed, and estimates given plc, Jersey Branch: HSBC House, Esplanade, St.
and reported by third party providers or issuers. constitute HSBC Private Banking’s best judgement Helier, Jersey, JE1 1HS. HSBC Bank plc, Jersey
HSBC does not always conduct its own specific at the time of publication, are solely expressed Branch is regulated by the Jersey Financial Services
due dili-gence in relation to measurement criteria. as general commentary and do not constitute Commission for Banking, General Insurance
There is no guarantee: (a) that the nature of the ESG investment advice or a guarantee of returns and do Mediation, Fund Services and Investment Business.
/ sustainability impact or measurement criteria of not necessarily reflect the views and opinions of HSBC Bank plc is registered in England and Wales,
an investment will be aligned with any particular other market participants and are subject to change number 14259. Registered office 8 Canada Square,
investor’s sustainability goals; or (b) that the stated without notice. Actual results may differ materially London, E14 5HQ. HSBC Bank plc is authorised by
level or target level of ESG / sustainability impact from the forecasts/estimates. the Prudential Regulation Authority and regulated
will be achieved. ESG and Sustainable investing Foreign securities carry particular risks, such as by the Financial Conduct Authority and the
is an evolving area and new regulations are being exposure to currency fluctuations, less developed Prudential Regulation Author-ity.
developed which will affect how investments can or less efficient trading markets, political instability,
be categorised or labelled. An investment which is In Isle of Man, this material is issued by HSBC
a lack of company information, differing auditing Bank plc, HSBC House, Ridgeway Street, Douglas,
considered to fulfil sustainable criteria today may and legal standards, volatility and, potentially, less
not meet those criteria at some point in the future. Isle of Man IM99 1AU. HSBC Bank plc is licensed
liquidity. and regulated by the Isle of Man Financial Services
Investment in emerging markets may involve Authority. HSBC Bank plc is registered in England
Important notice and Wales, number 14259. Registered office 8
certain additional risks, which may not be typically
This is a marketing communication issued by associated with investing in more estab-lished Canada Square, London, E14 5HQ. HSBC Bank plc
HSBC Private Banking. HSBC Private Banking economies and/or securities markets. Such is authorised by the Prudential Regulation Authority
is the principal private banking business of the risks include (a) the risk of nationalization or and regulated by the Financial Conduct Authority
HSBC Group. Private Banking may be carried out expropriation of assets; (b) economic and political and the Prudential Regulation Author-ity.
internationally by different HSBC legal entities uncertainty; (c) less liquidity in so far of securities In France, this material is distributed by HSBC
according to local regulatory require-ments. markets; (d) fluctuations in currency exchange rate; Private Bank Luxem-bourg French Branch - SIREN
Different companies within HSBC Private Banking (e) higher rates of inflation; (f) less oversight by a 911 971 083 RCS Paris. HSBC Private Bank-ing in
or the HSBC Group may provide the services listed regulator of local securities market; (g) longer set- France is subject to approval and control by the
in this document. Members of the HSBC Group may tlement periods in so far as securities transactions Autorité de Contrôle Prudentiel et de Résolution
trade in products mentioned in this publication. and (h) less strin-gent laws in so far the duties of [Prudential Control and Resolu-tion Authority].
company officers and protection of Investors. HSBC Private Banking is a Branch of HSBC
This document does not constitute independent
investment research under the European Markets in Some HSBC Offices listed may act only as Private Bank (Luxembourg) S.A. 18 Boulevard de
Financial Instruments Directive (‘Mi-FID’), or other representatives of HSBC Private Banking, and Kockelscheuer L-1821 Luxembourg, Public Limited
relevant law or regulation, and is not subject to are therefore not permitted to sell products and Luxembourg Company with share capital of :
any prohibition on dealing ahead of its distribution. services, or offer advice to customers. They serve 150.000.000 euros, RCS Luxembourg : B52461,
Any references to specific financial instruments or as points of contact only. Further details are Trade and Companies Register of Paris Bank
issuers do not represent HSBC Private Banking’s available on request. and Insurance Intermediary registered with the
views, opinions or recommendations, express or Organisme pour le Registre des Intermédiaires
implied, and are provided for information only. In the United Kingdom, this document has been en Assurances [Organisation for the Register of
The information contained within this document approved for distribu-tion by HSBC UK Bank plc Insurance Intermediaries] under no. 2011CM008
is intended for general circulation to HSBC Private whose Private Banking office is located at 8 Cork (www.orias.fr) - Intra-community VAT number:
Banking clients. The content of this document Street, London W1S 3LJ and whose registered FR34911971083. HSBC Private Banking in France
may not be suitable for your financial situation, office is at 1 Cen-tenary Square, Birmingham, B1 - Registered office: 38, avenue Kléber 75116 Paris-
investment experience and in-vestment objectives, 1HQ. HSBC UK Bank plc is registered in England FRANCE- Tel. +33 (0) 1 49 52 20 00.
and HSBC Private Banking does not make any under number 09928412. Clients should be aware
that the rules and regulations made under the In or from Switzerland, this marketing material
representation with respect to the suitability or
Financial Services and Markets Act 2000 for the is distributed by HSBC Private Bank (Suisse) SA,
appropriateness to you of any financial instrument
protection of investors, including the protection a bank regulated by the Swiss Financial Mar-ket
or investment strategy presented in this document.
of the Financial Services Compensation Scheme, Supervisory Authority FINMA, whose office is
This document is for information purposes only and do not apply to invest-ment business undertaken located at Quai des Bergues 9-17, 1201 Genève,
does not consti-tute and should not be construed with the non-UK offices of the HSBC Group. Switzerland. This document does not con-stitute
as legal, tax or investment advice or a solicitation This publication is a Financial Promotion for the independent financial research, and has not been
and/or recommendation of any kind from the purposes of Section 21 of the Financial Services prepared in accordance with the Swiss Bankers
Bank to you, nor as an offer or invitation from the & Markets Act 2000 and has been approved for Association’s “Directive on the Independence of
Bank to you to subscribe to, purchase, redeem or distribution in the United Kingdom in accordance Financial Research”, or any other relevant body of
sell any financial instruments, or to enter into any with the Financial Promotion Rules by HSBC UK law.
transaction with respect to such instruments. If Bank plc, which is author-ised by the Prudential In Abu Dhabi Global Markets (ADGM) this
you have concerns about any investment or are Regulation Authority and regulated by the Fi- material is handed out by HSBC Bank Middle
uncertain about the suitability of an in-vestment nancial Conduct Authority and the Prudential East Limited, ADGM Branch, PO BOX 113027, Al
decision, you should contact your Relationship Regulation Authority. Maqam Tower, ADGM, Abu Dhabi, is regulated by
Manager or seek such financial, legal or tax advice

41
Global Private Banking Investment Outlook Report

the ADGM Financial Services Regulatory Authority Banking is a division of Hongkong and Shanghai In all cases, we recommend that you make
(FSRA) and lead regulated by the Dubai Financial Banking Corporation Limited. In Hong Kong, this investment decisions only after having carefully
Services Authority. Content in this document is document has been distributed by The Hongkong reviewed the relevant investment product and
directed at FSRA defined Professional Clients and and Shanghai Banking Corporation Limited in the offering documentation, HSBC’s Standard Terms
only a Person meeting this criteria should act upon it. conduct of its Hong Kong regulated business. and Conditions, the “Risk Disclosure Statement”
In Singapore, the document is distributed by the detailed in the Account Opening Booklet, and all
In Dubai International Financial Center (DIFC), Singapore Branch of The Hongkong and Shanghai notices, risk warnings and disclaimers contained
In Dubai International Financial Centre (DIFC) this Banking Corpo-ration Limited. Both Hongkong in or accom-panying such documents and having
material is distributed by HSBC Private Bank (Suisse) and Shanghai Banking Corporation Limited and understood and accepted the nature, risks of and
S.A., DIFC Branch, P.O. Box 506553 Dubai, UAE Singapore Branch of Hongkong and Shanghai the terms and conditions governing the relevant
which is regu-lated by the Dubai Financial Services Banking Corporation Limited are part of the HSBC transaction and any associated margin requirements.
Authority (DFSA) and FINMA. HSBC Private Bank Group. This document is not intended for and must In addition to any suitability assessment made in
(Suisse) S.A, DIFC Branch only deals with clients not be distributed to retail investors in Hong Kong Hong Kong by HSBC (if any), you should exercise
who meet the requirements for being treated as and Singapore. The recipient(s) should qualify your own judgment in deciding whether or not a
Professional Clients as defined by the DFSA and this as professional investor(s) as defined under the particular product is appropriate for you, taking into
presentation is directed at Professional Clients only. Securities and Futures Ordinance in Hong Kong account your own circumstances (including, without
In South Africa, this material is distributed by or accredited investor(s) or institutional investor(s) limitation, the possible tax consequences, legal
HSBC Private Bank (Suisse) SA, South Africa or other relevant person(s) as defined under the requirements and any foreign exchange re-strictions
Representative Office approved by the South African Securities and Futures Act in Singapore. Please or exchange control requirements which you may
Reserve Board (SARB) under registration no. 00252 contact a representative of The Hong Kong and encounter under the laws of the countries of your
and author-ised as a financial services provider Shanghai Banking Corporation Limited or the citizenship, residence or domi-cile and which may
(FSP) for the provision of Advice and Intermediary Singapore Branch of The Hong Kong and Shanghai be relevant to the subscription, holding or disposal
Services by the Financial Sector Conduct Authority Banking Corporation Limited respective-ly in respect of any investment) and, where appropriate, you
of South Africa (FSCA) under registration no. 49434. of any matters arising from, or in connection with should consider taking professional advice including
The Representative Office has its registered address this report. as to your legal, tax or accounting posi-tion. Please
at 2 Exchange Square, 85 Maude Street, Sandown, note that this information is neither intended to aid
Some of the products are only available to in decision making for legal or other consulting
Sandton. professional investors as defined under the Securities questions, nor should it be the basis of any such
In Bahrain and Qatar, this material is distributed by and Futures Ordinance in Hong Kong / accredited decision. If you require further information on any
the respective branches of HSBC Bank Middle East investor(s), institutional investor(s) or other relevant product or product class or the definition of Financial
Limited, which is locally regulated by the respective per-son(s) as defined under the Securities and Products, please contact your Relationship Manager.
local country Central Banks (Central Bank of Bahrain Futures Act in Singapore. Please contact your
and Qatar Central Bank respectively) and lead Relationship Manager for more details. In Luxembourg, this material is distributed by
regulated by the Dubai Financial Services Authority. HSBC Private Banking (Luxembourg) SA, which is
The specific investment objectives, personal located at 18 Boulevard de Kockelscheuer L-1821
In Lebanon, this material is handed out by HSBC situation and particular needs of any specific Luxembourg and is regulated by the Commission de
Financial Services (Lebanon) S.A.L. (“HFLB”), persons were not taken into consideration in Surveillance du Secteur Financier (“CSSF”).
licensed by the Capital Markets Authority as a the writing of this document. To the extent we
financial intermediation company Sub N°12/8/18 to are required to conduct a suitability assessment In the United States, HSBC Private Banking is the
carry out Advising and Arranging activities, having in Hong Kong where this is permitted by cross marketing name for the private banking business
its registered address at Centre Ville 1341 Building, border rules depending on your place of domicile conducted by the principal private bank-ing
4th floor, Patriarche Howayek Street, Beirut, or incorporation, we will take reasonable steps subsidiaries of the HSBC Group worldwide. In the
Lebanon, P.O. Box Riad El Solh 9597. to ensure the suitability of the solicitation and/ United States, HSBC Private Banking offers banking
or recommendation. In all other cases, you are services through HSBC Bank USA, N.A., Member
In Hong Kong and Singapore, THE CONTENTS OF responsible for assessing and satisfying yourself that FDIC. Investments and certain insurance products,
THIS DOCUMENT HAVE NOT BEEN REVIEWED OR any investment or other dealing to be entered into is including annuities are offered by HSBC Securities
ENDORSED BY ANY REGULATORY AUTHORITY in your best interest and is suitable for you. (USA) Inc. (“HSI”), Member NYSE/FINRA/SIPC. HSI
IN HONG KONG OR SINGAPORE. HSBC Private is an affiliate of HSBC Bank USA, N.A. In California,

42
 Global Private Banking

HSI conducts insurance business as HSBC Securities each time, and the custody fee is 0,50 % per year (for of the HSBC entity where your account is held,
Insurance Services. License #: OE67746. Whole life, our actual fee structure please see our schedule of please go to HSBC Global Private Banking website
universal life, term life, and other types of insurance prices & services), the perfor-mance over a 5-year- > Disclaimer > Cross Border Disclaimer for
are offered by HSBC Insurance Agen-cy (USA) Inc., investment-horizon would be reduced 45 EUR disclosure of cross-border considerations regarding
a wholly owned subsidiary of HSBC Bank USA, N. A. your location of residence.
Products and services may vary by state and are not In mainland China, this document is distributed by
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agency of the United States; Not guaranteed by investment or subscribe for, or to participate in, any
the bank or any of its affiliates; and are subject to services. HBCN is not recommending or soliciting A complete list of private banking entities is available
investment risk, including possible loss of principal any action based on it. on our HSBC Private Bank website.
invested. ©Copyright HSBC 2023
In HSBC Bank Middle East Limited UAE Branch
In Australia, if you are receiving this document (HBME), regulated by the Central Bank of UAE, for ALL RIGHTS RESERVED
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provided by The Hongkong and Shanghai Bank-ing the Dubai Financial Services Authority. In respect
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provided is general in nature only and does not take
into ac-count your personal needs and objectives HSBC India, This document is distributed by
nor whether any investment is appropriate. The Hongkong and Shanghai Banking Corporation
Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”). HSBC India is a branch
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purport to, nor does it, give or provide any taxation Limited. HSBC India is a distributor of select mutual
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agent to determine your personal tax obligations. of United States of America (USA), Canada or any
other jurisdiction where such distribu-tion would be
In Germany, this material is distributed by HSBC contrary to law or regulation. HSBC India provides
Trinkaus & Burkhardt AG, a bank regulated by the non-discretionary portfolio advisory services for
Bundesanstalt für Finanzdiensleistung-saufsicht, select Private Banking customers under the SEBI
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Regulation (GDPR) has been in force in all EU ‘Mutual Fund investments are subject to market
Member States since May 25, 2018. Our updated risks, read all scheme related docu-ments carefully.’
privacy policy can be found on the HSBC Germany For SAA/TAA This is an illustrative approach of
website. If not explicitly stated, transaction costs a globally diversified portfolio allocation strategy
and if applicable custody fees are not taken into across asset classes; the strategy and the underlying
account in the calculation of performance statistics, fulfilment options are not applicable to India
however, they have a negative impact on it. If, for customers.
example, the initial investment is 1.000 EUR, and the
transactions costs for buying and selling are 1,00 % Where your location of residence differs from that

43
Investment Outlook
Q1 2024

Global Private Banking