In its latest quarterly investment outlook, HSBC Global Private Banking has identified opportunities against a backdrop of plateauing rates and a broadly supportive growth-inflation mix for markets.
A tenet of its fourth-quarter portfolio strategy is to broaden the opportunity set to less usual suspects to help clients navigate the concentrated outperformance seen in specific equity sectors and country allocations.
The bank has four investment priorities for the fourth quarter: lock in bond yields for medium-duration quality credit, broaden the opportunity set in equities, position for the structural shift towards sustainability, and manage risks through uncorrelated assets and volatility strategies.
End of rate hikes
The firm believes the US Federal Reserve has finished hiking rates, and that the European Central Bank and Bank of England will soon follow suit.
The end of the Fed's hiking cycle provides supportive conditions for bond markets, and HSBC Global Private Banking keeps high-quality, medium-duration credit and US Treasuries as its largest overweight positions.
Unusual equities
The environment of peak rates has provided significant support for growth stocks, particularly the technology mega-caps in the US.
As the US economy remains resilient, the company believes this sets the scene for a broadened equity rally beyond the "usual suspects". While maintaining an overweight on US technology, HSBC sees additional opportunities in US industrials, financials, consumer discretionary and healthcare.
This view applies to country allocations as well, with the team taking a positive stance on stocks in India, Indonesia, Mexico and Brazil -- beyond its overweight on the US.
The cyclical outlook is supportive in India and Indonesia, which benefit from supply chain diversification, as well as the rapid digitalisation of India's economy.
Thematically, HSBC added two new US themes to its existing consumer-focused "American Resilience", comprising US industrial resurgence, and innovation and opportunities in US healthcare.
These additions demonstrate the bank's broad optimism on US stocks and its willingness to look beyond the usual suspects.
Shift to sustainability
Significant investments in the net-zero transition are a positive across the Asia region, speaking to the ongoing investment priority of positioning for economic shifts towards long-term sustainability.
High-conviction themes include energy transition and independence, investing in biodiversity, and Asia's green transformation.
Navigating volatility
To complete its approach, the company added hedge funds and volatility strategies to take advantage of dispersion and to temper any volatility from temporary regime shifts.