The global economic recovery, although volatile, will persist in the fourth quarter, HSBC Private Banking believes.
The Asia-focused lender has sights on the upcoming US elections, Brexit negotiations, and steadily rising Covid-19 infections.
Even so, central bank policy remains positive and fiscal support will likely hold up in most developed markets, said global chief market strategist Willem Sels.
‘The continuity of these policy measures and the economic expansion should support our equity market overweight, where we currently hold a mildly cyclical sector stance,’ Sels said.
HSBC will continue to focus on quality companies with strong balance sheets in the equity space.
Meanwhile, it prefers investment grade to high yield bonds, and noted that China was better-placed to sustain policy stimulus than many emerging markets.
The bank is staying overweight on gold, that it expects would reach $1,950 per ounce by year-end.
However, it has retired gold as a high conviction theme, because it feels there is less upside following a significant rally.
Here are its four high conviction themes for Q4:
HSBC had introduced the theme at its third quarter investment outlook. Since then, the Chinese recovery has gained momentum and breadth, the bank said.
In August, China’s retail sales and manufacturing sectors recorded their first year-on-year growth since the pandemic. Credit conditions are accommodative too.
HSBC is keeping a preference for the global and Asian technology sector. ‘Their long-term outlook remains promising.
‘South Korea should benefit from these trends too, especially from the global 5G rollout, the demand for data centres and the “work-from-anywhere” trend,’ it said.
Industrial revolution 4.0
The world’s five largest companies, namely Apple, Microsoft, Amazon, Alphabet and Facebook account for a quarter of the S&P 500 by market capitalisation.
Given their success this year, investors are keen to discover more winners, HSBC said.
The opportunities are broadening to areas like automation, electrification, e-commerce, health tech and 5G applications.
The use of robotics in surgery should expand as well. ‘Currently, robotic penetration within soft tissue surgery applications stands at just 5% in the US and only around 2% in the globe,’ HSBC said.
Covid-19 has resulted in an increased focus on sustainability.
HSBC has zoned in on three areas, namely climate change and the circular economy, the electric revolution, and gender diversity.
The bank said the top 20 percentile companies in the FTSE All World Index with lower gender pay gaps performed better than those with higher pay gaps.
This held up over the two, five and ten-year horizons. ‘Gender diversity therefore creates value for businesses and investors. It is no longer just a “good to have” socially fair proposition,’ it said.
Low yield world
The US Federal Reserve has pledged to keep interest rates unchanged until 2023, at least.
Many emerging markets are in a low yield environment as well. This is challenging for private clients who usually have an income requirement.
HSBC likes developed market bank bonds, despite challenges around profitability.
Over in emerging markets, it believes China has an edge because of fiscal and monetary flexibility. But it sees opportunities in ‘select corporates with resilient fundamentals’ across the sector.