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Year end review and outlook
To 2016 and beyond…
Investment Outlook
December 2015
For Professional Clients and
Institutional Investors only.
Not for further distribution.
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Message from the Global CIO 3
Macro and asset strategy outlook 4
Multi asset outlook 7
Global fixed income outlook 10
Global equities outlook 13
Liquidity outlook 16
Contributors 19
Contents
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Message from the Global CIO Chris Cheetham, Global CIO, HSBC Global Asset Management
After a relatively subdued start to the year, global markets in
2015 saw a number of spikes in volatility across asset
classes. This was particularly salient in emerging markets, as
a consequence of which many saw their currency fall
substantially against the US dollar. The environment was
also marked by continued commodity oversupply and
anaemic demand, weighing on prices and impacting net
commodity exporters. Finally, in a context of ultra-low rates
defined by fears of deflation and disinflation, bond markets
have posted low to mid-single-digit returns in most segments,
with limited price upside.
These conditions are maintaining a “fragile equilibrium” of low
growth and low inflation, which is important for investors
because it is impacting valuations. A real challenge today is
that many asset classes look expensive, as a reflection of
low interest rates. The crucial question is thus to know if,
given this low growth and low inflation environment, risk
assets are attractively priced.
Based on our valuation approach, our answer today is that
they are, and we retain our preference for risk assets, relative
to safety asset classes such as government bonds in
particular. However, this equilibrium is fragile: whilst they
remain attractive, the risk premia do not currently offer much
upside, and there are risks to our scenario.
The major risk is that of a strong demand recovery, with
growth picking up too rapidly and interest rates rising too
quickly as a result, in turn challenging the valuation position
of credits and equities. The reverse risk is that of slipping into
a severe secular stagnation – weak global growth and
negative real interest rates – brought on by weaker growth in
China and other emerging markets.
Whilst we do not believe either of these risks is likely to
materialise, we remain cautious, as they have been
dominating investor sentiment and are, in our view, likely to
continue causing spikes in volatility in 2016.
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Macro and asset strategy outlook Q&A with David Semmens, CFA Senior Macro & Investment Strategist
Global markets remain concerned about the impact of
economic rebalancing in China, the implications of the
looming interest-rate hiking cycle in the US, the first in almost
a decade, and the effect of lower commodity prices on
emerging markets more generally. Nevertheless, there are
still many reasons for optimism.
While Japan has had a volatile path, its labour market
improvements should provide enough support to boost
consumer spending. In parallel, Eurozone growth is finally
making steady gains and US interest rates are on the path to
normalisation as the rebounding economy warrants less
support (Figure 1). These improving conditions are likely to
be further supported by additional monetary easing from the
European Central Bank (ECB), and People’s Bank of China
(PBoC), offsetting some of the tighter financial conditions that
will stem from the US. The potential remains for further
easing from the BoJ should inflation fail to significantly
accelerate. Ultimately, this environment should remain
supportive for risk assets.
However, several potential hurdles temper our optimism on
the growth outlook. The ongoing demographic shift may
restrain underlying trend growth in many developed markets
as these economies’ populations age and working-age
numbers decline. On the policy side, the potential for
mistakes such as excessive monetary easing or tightening
means that, in 2016, in our opinion markets will largely focus
on the decisions made or not made by central bankers.
Could you summarise the performance of the main
asset markets and the drivers over the past year?
So far in 2015, both developed and emerging markets have
seen significant disparity, although at a global level, markets
have edged lower for the year (Figure 2). Across developed
markets, the MSCI Europe index rose strongly in local
currency terms, but the weaker euro means that in USD
terms this performance has been negative. Within the
Eurozone there is notable divergence, with the Italian, French
and German MSCI indices up in euro terms, whilst the UK
index is down in both sterling and USD terms. Emerging
markets (EM) have seen even greater dispersal, with an
unusually volatile year for China. Overall, the MSCI EM index
is down, with currency declines pushing its falloff further still
in USD terms.
Foreign exchange markets have seen a broad decline
against the USD in both developed and emerging
economies. Declines in emerging markets in particular have
shown substantial disparity with the Chinese Renminbi down
only slightly while the Brazilian Real fell significantly.
Meanwhile, in developed markets the four commodity-linked
currencies, namely the Canadian dollar, the Australian dollar,
the Norwegian krone and the New Zealand dollar have also
seen notable drops. These declines were compounded by
the expectation that the US would raise rates in 2015,
particularly affecting emerging markets due to their greater
reliance on USD funding.
Developed market government bond yields have also seen
significant divergence, due to the evolving monetary policy
outlook. Eurozone bond yields trended lower at the shorter
end of the curve, in anticipation of further quantitative easing
and potentially lower deposit rates from the ECB, while yields
at the longer end have been less changed as expectation of
a sustained recovery replaced earlier concerns around a
possible Grexit. US treasury yields have risen, with the short
end of the curve remaining at the whim of market
expectations around central bank action (while the longer
end has risen only slightly). In our view, fairly robust global
growth, reflationary concerns and a persistent downward
revision to the expected terminal Fed rate have capped gains
so far. Meanwhile, riskier assets within fixed income such as
Emerging Market bonds and High Yield credit have seen
idiosyncratic pressures drive increased volatility, with the
indices standing at similar levels to the beginning of the year.
Ongoing concerns surrounding China’s growth outlook
coupled with excess supply and a stronger dollar mean that
commodity prices remained subdued at best in 2015. While
Q2 briefly saw oil prices move above their starting point for
Source: Bloomberg and HSBC Global Asset Management, as of 16
November 2015. Returns are expressed in price terms. Past performance
is not a guide to future performance
Figure 2: 2015 YTD asset class performance Figure 1: GDP outlook
Source: Bloomberg, as of November 2015.
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the year, they have since returned to a downward trend,
while iron ore prices are down substantially YTD. The impact
of lower commodity prices has raised growth concerns in
emerging markets significantly more than in non-commodity-
led developed economies.
What is your view of the long-term or “secular”
drivers of the global economy?
Although the deleveraging cycle in the US appears to
have come to a halt, consumer credit growth is now more
heavily concentrated in non-revolving credit, typically used
for purchasing white goods and autos, rather than in credit
cards, which are used for less capital-like purchases. This is
ultimately a more sustainable scenario for the world’s largest
consumer base.
Secondly, the labour market continues to show considerable
strength and is likely to do so for the coming few years.
Indeed, while unemployment is already low, rising wages
should boost labour market participation as re-entry into the
workforce is made more attractive. Europe is also seeing
labour market gains, albeit from a weaker starting point and
with a slower pace of recovery. The boost to consumer
sentiment and spending is welcome and likely to be long
lasting, in our view (Figure 3).
Our house view remains that we are in a "Fragile
Equilibrium": the growth/inflation mix will be low, with risks.
Inflation remains subdued in advanced economies and
across Asia and, if anything, deflation risks are in the
ascendant. Meanwhile, despite good cyclical growth news in
Europe, there is a shortfall of aggregate demand relative to
supply across advanced economies. The deleveraging
super-cycle continuing outside the US and the legacy of the
financial crisis remain headwinds for growth, and falling EM
capital accumulation hardly helps. We believe that the
interest rate cycle, when it comes, will be "slow and low", and
that central banks are likely to maintain real rates at
particularly low levels, even in the US. This will be supportive
of the continued recovery over the long run, on financial
markets but also by allowing for a longer business cycle than
has typically been seen.
Productivity growth remains painfully slow as emerging
markets approach the limit of easily achievable gains, while
developed economies further increase their concentration on
services, presenting less opportunity for aggressive
productivity gains (Figure 4). This remains a key challenge,
especially in the face of demographic trends whereby many
economies are seeing their population age and their
workforce diminish, creating a greater dependence on those
currently working and a headwind for long-term growth.
Low energy prices have continued to provide global support
to consumers, although they have acted as a transfer from
commodity net exporters to those that are net importers. We
foresee little structural change with excess capacity likely to
persist into the medium term and global growth expected to
remain more muted.
Finally, while China is likely to continue to slow, the
adjustment from being a manufacturing to a services-based
economy encompassing the shift from quantity to quality
growth is a policy aim and will provide a more resilient, less
export-dependent economy going forward.
How about the nearer-term cyclical drivers for these
economies?
Over the last few months, global growth fears have been
dominated by worries over Chinese and EM growth following
the CNY mini-devaluation in August and expectations of
imminent Fed tightening which have both concerned markets
and led to increased optimism at different points of the year.
Our take is that this episodic volatility is likely to be a
persistent feature of markets going forward. Investor
sentiment can easily drift from the current “Fragile
Equilibrium” to perceptions of “Severe Secular Stagnation” or
“Strong Demand Recovery”. As we saw in August and
September, the market can indeed simultaneously hold two
opposing worries in different asset classes and regions, and
this is unlikely to change in the near future.
Figure 4: Services continue to outstrip manufacturing
Source: Bloomberg, as of November 2015.
Figure 3: A very different rate of progress
Source: Bloomberg, as of November 2015.
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While the drop in commodity prices has been a key support
for global consumption until now, the ongoing labour market
recovery and eventual pressure on wages will mean that total
real income will continue to rise steadily, also supporting the
recovery.
The continued divergence between services and
manufacturing globally is likely to continue in our view,
although indicators signal that manufacturing weakness is
unlikely to persist as activity has scaled back notably and
new orders generally appear to be improving, albeit at a
modest pace.
Despite growing risks, we continue to see a European
cyclical story driven by a combination of good news on
corporate profits, bank lending, and capacity utilisation. Key
leading indicators still look robust, even if other metrics have
slipped somewhat.
How do you view this impacting the short- and long-
term prospects for the asset markets?
The topic of monetary policy divergence should move
from discussion and expectation to fruition during 2016.
While the Fed is unlikely to raise rates as aggressively as in
prior cycles, we still expect a swifter increase than what the
market is currently forecasting. This will keep volatility high in
the short term but in the medium term should allow assets to
benefit from a more stable outlook. Moreover, it is our belief
that the Federal Reserve will only continue to raise rates as
long as the outlook for the US economy remains robust, the
employment market carries on strengthening and growth
stays above trend. We expect continued quantitative easing
from the ECB and BoJ to be supportive for growth in these
economies, with a likelihood of both regions seeing an
extension to their QE programme far greater than that of
curtailment.
In the longer term we continue to favour risk assets,
particularly those in emerging markets due to the potential
longer-term FX appreciation, but also given the forthcoming
monetary tightening in the US and the limited upside for
government bonds elsewhere.
What are some of the key risks for 2016?
Political risk remains alive and well in both emerging and
developed economies, with a drift towards populist parties
continuing to weigh on some markets. Elections in Ireland,
Taiwan, Thailand, Austria, South Korea and the United
States all currently offer the potential for significant surprises,
subsequent policy changes and market impacts. However,
we believe the key concern for 2016 is the risk of a central
bank policy misstep.
Firstly, the Federal Reserve may tighten too aggressively,
hindering the recovery, or not aggressively enough, requiring
a greater pace of tightening in the future. At this stage, we do
not see either scenario as likely, but we remain cautious that
the market is currently at odds with both the rate of tightening
the Federal Reserve is forecasting itself and that which we
expect. We have anticipated that the first Fed rate hike in
almost a decade would reduce volatility in the market, with
the typical acclimation period of around six months as the
market seeks evidence of a continued recovery in the face of
higher interest rates. However, should the economy react
violently, it is possible that policy moves will be less smooth
than we would like and inject more, rather than less, volatility
into the market.
Similarly, there is a mixed case for further monetary easing
from the ECB: although current Eurozone inflation
expectations remain anaemic, underlying growth is currently
above trend. It remains our concern that excessive monetary
easing from the ECB could see inflation rising higher than
anticipated. Additionally, the fiscal drag of the prior six years
is likely to become a net contributor to growth. However,
labour market slack is considerably higher than in the US so
additional easing could remain a positive influence, allowing
the Eurozone to make up some of the lost ground in growth
over the past seven years. Our expectations are that GDP in
real terms will finally return to its pre-crisis peak in the next
six months – a feat achieved in the US in late 2011.
Meanwhile in China, our concern remains that of a possible
hard landing occurring without a policy reaction to soften the
blow. However, given the potential for further monetary and
fiscal support this is not a scenario we expect to materialise.
The continued conflict in the Middle East also remains a
concern. Notwithstanding the human tragedy, at present the
economic impact remains limited, although the concentration
of oil production in a geographical area maintains a risk
premium regardless of an apparently abundant supply.
Global macro and asset strategy outlook
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Multi asset outlook Q&A with Joe Little, Chief Strategist, Strategic Asset Allocation
In 2015 we saw a number of episodic spikes in volatility
across fixed income, equities and currencies. Emerging
market assets have been particularly volatile and largely at
the centre of market participants’ worries. This, in turn, has
had spill-over effects on other asset classes. This kind of
price action creates challenges for portfolios in the short
term, but also generates opportunities for contrarians. Many
developed market equity markets, for example, rallied
strongly during Q4, once perceptions of China macro risk and
global deflation diminished.
Today, our house view remains that we are in a “fragile
equilibrium” of low growth, low inflation and low medium-term
asset class returns. 2016 looks like it will be a year of
reasonable growth in developed markets, but a more uneven
environment for EMs. There are risks to this scenario,
however. Perhaps counter-intuitively, we think the biggest
risk could be better-than-expected growth.
What are the key takeaways from 2015?
The recent investment environment has been
characterised by four key themes.
First, the year began with relatively subdued market volatility
but, during 2015 we experienced spikes in volatility across
asset classes. Notably, over the summer we saw the mini-
devaluation of the Chinese RMB and, following this, elevated
concerns among investors about a China macro hard-
landing. The resulting market environment of high volatility in
equities, fixed income and EM assets, and high asset class
correlations can make it difficult to provide diversification in
portfolios, even for multi-asset strategies.
Second, in major government bond markets, investors have
continued to assume a stagnant growth environment, even
into the medium and longer term. Current pricing, for
example, assumes that European interest rates will only be
1.5% in 10 years’ time.1 Major bond markets have traded in a
fairly narrow range through 2015. However, fascinatingly, the
policy outlook remains quite unusual. For most of the world,
deflation and disinflation worries have been front of mind. We
have seen rate cuts from 30 central banks this year.
Meanwhile, the Fed and US economists have debated the
timing of US interest-rate “take-off” all year. While the US is
beginning to start a new monetary tightening cycle, the rest
of the world is looking in the opposite direction. Large
expected interest-rate differentials have supported the US
dollar versus G10 and EM currencies through the year.
Third, credit markets have been hurt in the second half of
2015 as investors worried about default and liquidity risks.
For global high-yield credits, for example, spreads have
widened significantly since June. In particular, investors fear
that weakness in oil and commodity sectors will “spill over”
into the broader credit universe. Indeed, this has been the
pattern for previous default cycles (energy sectors have been
leading indicators) and nervousness about the outlook
logically follows.
Finally, the big story during the second half of the year has
been the weakness in emerging markets. Today, EM is
viewed as very risky by investors. Certainly, EMs face a
number of serious macro headwinds: a China slowdown, the
abrupt fall in commodity prices, political risks, tighter financial
conditions and capital outflows, as well as weaker global
trade. China and Brazil are the most salient country concerns
for investors given their economic importance and weight in
EM investment indices. Nonetheless, these headwinds are
significant across emerging markets. Many currencies, for
example, are down more than -10% versus the US dollar in
2015 (the Brazilian real, Colombian peso, Malaysian ringgit
being extreme cases – Figure 2). In USD terms, equities and
local-currency bonds have fallen substantially. Market
participants, including the OECD,2 fear that these EM
developments could threaten the outlook in advanced
economies as well.
Figure 5: Market-implied inflation expectations
Source: HSBC Global Asset Management
Figure 6: Emerging-market exchange rates versus USD
Source: HSBC Global Asset Management
1 We derive interest rate expectations from the French government
bond curve.
2 See OECDs 2015 Economic Outlook , 9th November 2015
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What is the outlook for 2016 and beyond?
Valuation is the key factor in our approach to multi asset
investing: We first assess the “implied odds” that current
market pricing offers, based on a systematic way of thinking
about valuation. We then analyse these valuation signals in
light of cyclical macro indicators and market technicals.
Additionally, and where appropriate, we can leverage the
experience of our asset class specialists across HSBC
Global Asset Management’s other investment capabilities.
This process generates our “house views” and drives the
investment strategy and asset allocation across our global
multi-asset platform.
In this context our house view remains that we are in a
"Fragile Equilibrium". We believe the global growth/inflation
mix will remain low, with risks, because we perceive a
shortfall of aggregate demand relative to supply across the
advanced economies. This implies that, when it comes, the
interest rate cycle will be “slow and low”. Interest rates will
rise only gradually and will mean-revert to historically low
levels only. A number of macro factors are behind this: weak
cyclical growth and reduced potential growth, excess savings
relative to investments, a scarcity of high-quality safety
assets, and the deleveraging cycle. Importantly, we continue
to adopt a slightly more hawkish interest rate assumption
than priced by the market (i.e. rates rise faster in our
scenario, in line with the Fed’s “dot-plot” interest rate
projections).3
The pricing of risk assets implies that investors perceive
some global earnings risks and default problems ahead.
Nevertheless, at least in advanced economies, growth looks
reasonable. For the OECD, for example, GDP growth is at
1.7% currently. This is not a rapid rate, but it is certainly not a
growth catastrophe. Moreover, we think the environment
remains supportive for the corporate sector. It is true that we
have seen a tail-off in earnings momentum in the US
(although much of this is due to the strength of the dollar and
the weakness of the oil price); nonetheless profitability
remains high and we have seen good profits data in Europe
and Japan (Bundesbank data shows German profits close to
all-time highs, for example). The fundamental support of low
wages, low commodity prices and low rates remain in place,
corporate health metrics appear robust in developed markets
and, given a rather benign macro growth environment, profit
margins should be reasonable.
The outlook for EM equities is more challenging, however.
We think implied returns have improved following the
episodic events of the summer, but idiosyncratic macro
events in China and Brazil cloud the picture. Profitability data
is weakening in many emerging markets, soft global trade
growth is a problem, and higher US-dollar debt is another
vulnerability, in the context of depreciated local currencies.
We do still think that analysts remain too pessimistic around
the outlook for China. In our view the North Asia region looks
like the most attractive EM equity market.
Although EM currency volatility has been a major market
theme, large FX depreciations are now improving some
external balances (e.g. Brazil). In Latin America, we think that
the pricing of local currency bonds looks very attractive;
yields are high, the macro environment appears to be
improving, and the currency depreciation offers improved
terms for developed market-based investors. The picture for
hard-currency EM asset classes remains more challenging,
however.
One surprise this year has been the behaviour of developed
market government bonds. During the summer, in an
environment of heightened macro and market stress, US
Treasury bonds were not able to rally meaningfully below 2%
yields. This has led us to the view that developed market
long bonds are unlikely to fulfil their primary role of hedging
multi-asset portfolios. We need to think about alternative
options as “safety” asset classes. Given current pricing, we
prefer to use short-duration bonds and US TIPS (inflation
linked bonds), alongside cash.
What are the key risks to your investment view?
The risks to the “Fragile Equilibrium” are, on the one
hand, the development of a severe stagnation of long run,
secular growth conditions and, on the other hand, a stronger
demand-led recovery than we currently expect. Market action
has been dominated by the shifting balance of risks between
these two concerns, especially since the summer.
Firstly, many market participants have worried that softer
activity in emerging markets could push us into a “Severe
Secular Stagnation” scenario, that is to say, a sustained
period of weak global growth and negative real interest rates,
which in turn poses a meaningful threat to corporate
fundamentals and balance sheets. This risk would primarily
stem from weaker growth in China and emerging markets.
However, given the scope for policy to act as a “cushion”
against this risk, we would tend to view the emergence of
market worries around this theme as buying opportunities.
Meanwhile, a second risk comes from a stronger-than-
expected recovery in demand conditions. Such a situation
would imply that output gaps become positive and pressure
on real interest rates rises. Bond yields would move back to
historic norms and this could, in turn, challenge the valuation
position of credits and equities. This scenario seems most
likely to develop from the US, where the data has been the
strongest, the recovery is most well-established and the
monetary cycle could surprise on the hawkish side. This
scenario would have negative implications for developed
market bonds, credits and equities, although it could create
over-shooting conditions in the US dollar. Most
problematically, it is hard to see what could reverse these
dynamics once they establish themselves. This is why we
have regarded stronger-than-expected growth as a key risk
for our market outlook.
We think there will be scope for market de-rating and re-
rating as perceptions of asset class risk shift over time.
Market volatility is likely to be episodic. This in turn implies
that an active approach to asset allocation makes sense
today.
3 See FOMC Projections Materials, September 2015
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Multi asset outlook
What does this mean for multi-asset portfolios?
We believe that asset allocation should not be neglected
by investors, but should be a key and dynamic decision, and
regularly revisited. Our approach to multi-asset investing is
grounded in valuation and economic analysis.
We remain strategically underweight core government bonds.
We believe that the term premium is negative across
developed market long bonds. In other words, investors are
not being rewarded for taking duration risk. Instead, we
prefer allocating to short duration DM bonds or US TIPS. In
particular, US TIPS look interesting. There is scope for the
recent inflation under-shoot to unwind over the next year,
especially given the state of the US labour market. This
should support real bonds relative to nominals.
We believe credit is attractive and are overweight this asset
class. There are some risks, particularly for indices with large
weights in energy and commodity sectors, and market
concerns that downgrades and defaults here could spill over
into the broader index are not without foundation. Yet today,
the credit premium (the reward for bearing credit risk) is high.
The default and downgrade cycles are not deteriorating
dramatically so far. In European credits, oil exposure is
lower, the capital structure is relatively senior, and
projections from Moody’s point to a continued benign default
environment. Combined with a dovish ECB, we still believe
this is a relatively attractive asset class.
In developed market equities, the risk premium still looks
reasonable globally. Despite some prominent economists
worrying about a “profits recession”, we are unconvinced that
underlying earnings growth is weakening significantly. At
least in developed markets, the environment remains profit-
friendly. We continue to favour Europe and Japan over the
US. This is based on the relative valuation position and the
profits cycle. It is important, however, to take exposure to
these markets on a hedged basis for dollar-based investors,
given our expectations for monetary divergence, detailed
above.
In EM, we are positive on EM local-currency debt, especially
in Latin-American markets like Brazil and Mexico, as
discussed above. Hard-currency EM debt is more
problematic. We suspect there is a risk that spreads could
move wider still, and there are a number of important EM
corporate vulnerabilities. In our opinion, the exposure to US
duration is not attractive either at present. In EM equities, we
would favour North Asia over other regions, China H-shares
in particular. Across EM asset classes, unheged exposures
now make sense for dollar, sterling or euro investors. The
current pricing of EM currencies suggests to us that we can
reasonably expect currency appreciation over the medium
term in both EM bonds and equities.
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Global fixed income outlook Q&A with Xavier Baraton, Global CIO Fixed Income
Source: HSBC Global Asset Management, Bloomberg at 13 November
2015. Past performance is not a guide to future performance
Figure 7: YTD performance of major global bond indices
(Local currency)
Whilst 2015 saw volatility stemming from both heightened
perceptions of risk and factual reasons, overall bond returns
have been slightly positive, with only a few exceptions. We
believe this will continue in 2016, although we remain
cautious on the US and prefer Europe and Asia. We think a
combination of factors will continue to push US rates higher,
with some flattening of the US curve, while the European
curve is likely to be more directional. We also expect to see
greater convergence within the region as the periphery
enjoys better economic growth.
We remain selectively positive on credit for 2016, with a
focus on low investment grade and better-quality high yield.
We see attractive valuations in the US, and even more so in
Europe, but greater idiosyncratic risk in emerging markets.
On emerging markets more generally, downward
fundamental pressure and rating deterioration will remain on
the agenda in the coming year, in our view. Nonetheless, our
outlook has shifted from defensive to selective as
adjustments made in 2015 are starting to bear fruit in a
number of countries, particularly in local currency debt.
What is your analysis of the environment from a fixed
income perspective, looking back over 2015?
Throughout 2015, the world economy and financial
markets have evolved in the same scenario as in the past
few years, what we call the “Fragile Equilibrium”. This
environment is defined by a confrontation between the
cyclical uptick – i.e. the growth acceleration usually occurring
at this point in the cycle – and secular stagnation forces
specific to the global financial crisis, namely deleveraging,
ageing populations, and the regulatory overshoot. This
confrontation has many implications, starting with a low
growth, low inflation world, but also the fact that the
perception of risk is higher and the contagion risk
overestimated. Market perception is that any local risk can
become global, a phenomenon which can obviously cause a
lot of volatility and is itself amplified by the lack of liquidity in
financial markets.
Of course, in 2015, there have also been numerous factual
reasons for volatility, from the trouble in the energy industry
in the US to the Greek political crisis before the summer, and
China’s deceleration. The currency depreciation in emerging
countries over the course of the year and market
expectations around when the Federal Reserve would raise
rates have been causing concerns as well.
However, and perhaps somewhat surprisingly, bond returns
have not been particularly negative. In fact, with only a few
exceptions, bond segments have posted low to mid-single-
digit returns. The exceptions are the US, with US high yield
standing at -2% YTD, and emerging market local-currency
debt, which posts high single-digit negative returns because
of currency depreciation. Overall, 2015 has therefore been a
relatively decent year for fixed income.
Looking forward to 2016, what is your outlook on
rates?
We believe a combination of factors will continue to push
US rates higher in the coming year.
First, we expect inflation to accelerate. The US economy
looks very robust and we continue to see very strong
employment numbers, with an unemployment rate now at 5%
and strong nonfarm payrolls. In consequence, wage
increases are beginning to pick up, which will put further
pressure on the Federal Reserve to raise rates. Additionally,
due in part to base effects on commodity and energy prices,
inflation may accelerate as we go into next year. Looking at
forward rates, we can see that very few rate hikes – only two
to three – are currently priced in. In contrast, we believe that
there could be up to four rate hikes priced at some point in
2016, which would have a significant impact on the long end.
We therefore believe the US curve is relatively vulnerable to
an acceleration of inflation.
When the Fed starts to normalise and turns back to
conventional policies, US real rates are likely to continue
edging higher. Historically, for 10-year US real rates, the 1%
bar has marked the difference between conventional and
-15% -10% -5% 0% 5% 10%
Global Broad
US Govt
EU Govt
EU AAA Govt
EU PIIGS
US IG
EU IG
US HY
EU HY
EMBIG
EM GBI
ELMI+
CEMBI
JACI IG Corp
JACI HY Corp
JACI Sov
EUR
JPY
GBP
EM FX
MSCI EM
S&P500
Euro Stoxx 50
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non-conventional monetary policies. With real rates at 10-
year above 1%, this would typically translate into nominal
yields ranging between 2.75% and 3%,. In our view, it would
take a global resurgence of secular stagnation forces to slow
the process.
In Europe, we feel more confident. Of course, we expect
German bund yields to also edge higher, pulled up somewhat
by the US rate rise but we think they will resist the move to
some extent, and we expect the gap in yields to increase
between US Treasuries and the German bund. With bund
yields currently at 170 basis points, we think they could go up
to 190. We also continue to like the periphery, as we expect
to see greater convergence in 2016, with peripheral countries
such as Ireland, Spain, or Portugal enjoying more dynamic
economic growth in particular.
We also foresee some flattening of the US curve as the Fed
moves towards its first policy rate increase, while the
European curve is likely to be more directional.
What are your views on credit?
On credit, we are constructive in investment grade and still
careful and selective on high yield.
If we start by looking at high yield credit, we think US
companies are now exhibiting high leverage, mainly as a
result of shareholder-friendly activities. Share buybacks and
M&A are already at cyclical highs and yet we will continue to
move ahead in the cycle. The decline in oil prices is another
important cause of the deterioration and volatility of the US
High Yield market. Companies appear more vulnerable, even
if leverage ratios have stabilised when excluding Energy.
Given the situation and in the context of future rate hikes, we
think the technicals and the momentum for US high yield will
remain challenging.
The outlook is probably better in Europe, where credit is in
more of a sweet spot with the ECB supporting liquidity,
economic growth accelerating modestly and fewer
shareholder-friendly initiatives happening.
Overall, the global high yield market is more diversified but
also more exposed to a variety of risks than it was in the
past, notably risks stemming from emerging markets. After
witnessing significant issuance volumes five years ago (with
many first-time issuers), EM corporates are now more
exposed to refinancing risk, signalling a potential increase in
future default rates. The recent decline in issuance volumes
is healthy but highlights this refinancing risk in a context of
rising rates.
The case of investment-grade credit is somewhat more
compelling from a technical standpoint, as credit deterioration
is slower and valuations are attractive, particularly in Europe.
And on emerging market debt?
On emerging markets, we do not foresee any major
changes in the fundamental landscape. We continue to
expect some deterioration in credit quality with more
downgrades, possibly from the low BBB countries into the BB
category, as happened in 2015 for Russia and Brazil. Over
the coming years, we think there is also a risk of significant
spread widening or restructuring for frontier markets, which
are essentially CCC-rated countries.
Nevertheless, the numerous currency depreciations we
witnessed in 2015 mean that commodity exporters with
flexible currencies are adjusting, and this is starting to bear
fruit. For countries like Brazil, for instance, the trade balance
has improved very meaningfully. For local-currency debt in
particular, we see opportunities and valuations are now
attractive. In hard currency, technicals are not as supportive
and we are somewhat more cautious. Both sovereign and
corporate hard-currency debt is more exposed to a decrease
in US dollar liquidity when the Fed starts to raise rates. We
therefore remain extremely selective in terms of countries,
Figure 8: US vs. Euro vs. UK curves
Source: Bloomberg, data as at 30 September 2015. Past performance
is not a guide to future performance
Figure 9: HY annual default rates for US, EUR and EM
(percent of issuers)
Source: HSBC Global Asset Management and Bank of America Merrill
Lynch, as at 5 October 2015.
0
5
10
15
20
25
30
1999 2001 2003 2005 2007 2009 2011 2013 2015
BofA-ML US HY
EU HY
EM HY
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Global fixed income outlook
Figure 10: Local-currency bond currency valuation vs.
USD (%)
Source: Hard currency data source Barclays Live, Barclays indices as at
30 September 2015. USD/ELMI data theoretical is composed of HSBC
Global Asset Management calculations based on inflation-adjusted
productivity differentials between EM and US productivity indices to 25
September 2015.
with a focus on those that have floating currencies, high
external reserves and a proven record of orthodox fiscal and
monetary policies.
What are the key risks and opportunities for fixed
income in 2016 and beyond?
In terms of opportunities, we think returns will be very
similar to what we have seen in 2015, with low to mid-single-
digit returns across bond segments. We continue to prefer
Europe and Asia, which are more resilient and supported by
economic stability or even a soft acceleration, in our view. On
the other hand, we remain cautious on the US, particularly
US Government bonds, which may suffer from the Fed’s rate
hike cycle.
There are of course many risks to the outlook as well. unlike
in 2015 when deflation was looming, market expectations
may lean towards a scenario of more synchronised demand
globally, with the US accelerating, Europe picking up, Asia –
and China in particular – stabilising, and Latin America
coming out of a very disappointing 2015. In this scenario, the
Fed will be under greater pressure to raise rates.
Emerging countries also present significant risk, and we will
continue to monitor their structural adjustment. We will be
paying close attention to the risk of a credit tightening within
EM corporates in particular. Over the past few years, EM
corporates have been relying heavily on US dollar liquidity
and the new rate cycle will make their life more difficult in that
respect.
More generally, geopolitical risk remains, in Europe or the
Middle East, with political uncertainty that may resurface in
other countries like Brazil, which is currently caught in
gridlock. Overall, we expect 2016 to be another very busy
year on fixed income markets.
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
USD/ELMI historical
USD/ELMI theoretical
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Global equities outlook Q&A with Bill Maldonado, Global CIO Equities, CIO Asia-Pacific
Source: Bloomberg as at end October 2015. Past performance is not a guide to future performance
Figure 11: Performance of equity markets
Equity markets in 2015 were characterised by significant
volatility, driven by concerns on the potential Fed rate hike,
and economic weakness in Europe and China. We believe
that the current environment of fragile equilibrium will
continue interspersed with potential periodic shocks that may
trigger market volatility.
Whilst we foresee modest global equity returns for the long
term, we think the environment remains relatively positive,
and we continue to favour the asset class over safer assets
such as government bonds and cash. Markets appear to
have priced in risks, but remain cautious on potential upside
in 2016. This suggests that if there are early signs of a pick-
up in growth or corporate profits, then equities could receive
a welcome boost.
The improved outlook for Europe is likely to be supported by
accommodative monetary policy, as corporates feel the
continued benefit of low commodity prices and a weaker
currency. For China, we believe the pessimism may be
overdone, and continue to see exciting opportunities as the
economy is rebalanced.
What were some of the key developments for equity
markets in 2015, and why has there been so much
volatility?
The performance of global equity markets in 2015 has
been characterised by significant levels of volatility. Equity
performance was generally stronger in the first half of the
year, but turned down sharply in August and September,
before picking up in October after the European Central Bank
announced an easing bias. As a result, European equities in
local currency terms have performed particularly well (year-
to-date as at end October 2015).
The market turbulence we have seen this year has been
driven by three primary concerns: the timing of the next Fed
rate hike, weakness in the European economy and concerns
that a liquidity-driven rally has ended in China, as economic
growth there continues to slow. These concerns come at a
time characterised by low global economic growth and low
prospective returns.
Volatility has hit emerging markets harder than developed
markets in 2015, as concerns over liquidity have resulted in
sharper withdrawals from international investors, and weaker
performance than on equity markets in developed
economies. We anticipate that market volatility could
continue in 2016.
What is the outlook for equities in 2016?
The global economic environment in our opinion is likely
to remain in a fragile equilibrium – one where global growth
and inflation both remain relatively low, with potential periodic
scares triggering bouts of stock market volatility.
Such slow and uneven growth has been the norm over the
last few years, and this has been driven by a range of
factors. The first were the series of unexpected shocks
markets experienced, from the Eurozone debt crisis to
Greece, the US debt fiscal cliff, but also geopolitical risks in
Ukraine and the Middle East. Other headwinds have been
the deleveraging super-cycle and constrained capital
spending in Western economies, and slower than expected
growth in emerging markets. That said, we believe the impact
of these scares has worked its way through the global
economic system, and is now clearly reflected in current
equity valuations and long-term expected returns for the
asset class.
MSCI index level
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Therefore, while we foresee modest global equity returns for
the long term, it remains our conviction that investors are
much better off investing in this asset class rather than in
government bonds and cash. Though global growth remains
modest, there is no cause for despondency over the coming
months. Expectations for growth are cautious, which leaves
the door open for potential upside.
In fact, should earnings surprise on the upside in 2016, this
may potentially add momentum to market performance. The
outlook for earnings growth is reasonably modest, and
estimated roughly at 5% for 2016. Currently, there are low
expectations for significant earnings upside, given the lack of
catalysts for a re-rating. However, should there be any signs
of a pick-up in growth and profits, this could provide a trigger
for earnings estimates to improve during the course of the
year.
Are there any bright spots for Equities?
The one significant advantage of periodic market volatility
is that it creates opportunities for active managers. Indeed,
we are seeing opportunities across the markets – both on a
stock and sector level, and in some cases, on a regional and
country level as well.
The outlook for Europe has improved, and growth should
continue to pick up supported by accommodative monetary
policy. Corporates have benefitted from a weaker currency
and low commodity prices, and we envision the net positive
impact of these factors should continue to support European
equities.
Within emerging markets, we do have a preference for Asia
ex-Japan equities, based on their stronger fundamentals and
attractive valuations, which have fallen to levels last seen
during the global financial crisis.
However, it’s hard to argue that region’s fundamentals justify
such low valuations. Asia ex-Japan has generally benefitted
from a strong reform agenda which has tackled a myriad of
issues, such as financial and agricultural reform, improved
governance and labour market improvements. These are
especially visible on a country level, in markets such as India
and China.
Our clear preference on a sector level is for cyclical stocks,
as they look the most attractive from a profitability and
valuation perspective; these stocks have yet to realise their
full potential. However, in light of the ongoing volatility we
believe investors should remain truly diversified.
What are the key risks to your central scenario?
In the near term, all eyes will be on the Federal Reserve’s
decision on rates, although we don't think that investors
should overly focus on what the Fed will do. Whether the Fed
hikes interest rates either sooner or later will make little
difference to the overall macroeconomic and equity outlook,
as we expect the Fed to keep monetary conditions
accommodative, in light of the constrained growth outlook.
There is of course a danger that the Fed may over-tighten or
under-tighten its rates, although this is not our core scenario,
given that the Fed has clearly stated that it remains data-
dependent.
A hard-landing scenario in China, potentially sparked by
policy missteps, is another risk to consider, although this isn't
our central scenario either. We think Chinese policymakers
will remain supportive of growth throughout the country’s
transition from an investment-led to a consumer-driven
growth model.
Source: Credit Suisse, as at end October 2015
Figure 12: Asia ex-Japan valuations are post crisis levels
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Global equities outlook
There have been mounting concerns about China,
both from an economic and policy action perspective.
How should we think about this market, and do the risks
outweigh the opportunities?
Growth in China has slowed significantly following the
global financial crisis, as the economy started shifting from its
previous reliance on investment-driven growth to a more
sustainable path promoting domestic consumption.
As a result, we see opportunities arising, as China’s
consumer base continues to develop. For example, the rise
of on-line transactions and the increasingly important roles of
social media and mobile devices are re-shaping the ways
Chinese consumers purchase goods and services. This
indicates a wealth of opportunities in China’s e-commerce
sector.
Authorities have additionally pursued a substantial reform
agenda – improving productivity in the agricultural sector,
pursuing efficiency in previously bloated State-Owned
Enterprises, whilst liberalising and deepening domestic
capital markets. Simultaneously, policy easing has provided
ample liquidity.
However, Chinese authorities have had to manage the very
difficult task of supporting growth in capital markets whilst
preventing the dangers of excess. For example, they have
taken measures to crack down on leverage by introducing
margin lending curbs and by slowing down capital-raising
activities such as IPOs. This has naturally introduced a
strong element of volatility in Chinese equities, especially A-
shares which had been previously fuelled by a liquidity-driven
rally.
However, following the sharp fall in Chinese equities, we
have seen pockets of value beginning to emerge across
sectors and share classes:
In terms of sectors, we favour insurers given the stable
and strong premium growth and attractive valuations present
within the industry
We remain positive, albeit selectively, on property
developers with significant exposure to tier-1 cities given the
strong demand, potential undersupply, and further monetary
easing/policies which will help reduce down-payments for
home purchases
We also believe carmakers will benefit from the latest tax
cuts and the government programme promoting new-energy
vehicles
Overall on Chinese equity, while market volatility may
continue in the near term, valuations remain attractive on a
price-to-book vs. profitability basis, in our view. International
investor confidence has been shaken by news this year, and
we now believe that the market reaction may be overdone,
as there seems to be excessive pessimism regarding China’s
outlook. We believe it is worth looking past the headlines and
taking a balanced approach to investing in China. Indeed, we
think Chinese markets offer a myriad of opportunities to
active investment experts, and that taking a diversified long-
term approach can help unlock value whilst mitigating
volatility.
Figure 13: Rise of China’s e-commerce market
Source CEIC, HSBC Global Asset Management as at end September 2015
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Liquidity outlook Q&A with Jonathan Curry, Global CIO Liquidity
Whilst expectations for interest rate rises in the US and the
UK fell continuously throughout 2015, and we expect
Eurozone rates to move further still into negative territory in
2016, we believe rates in the US and UK are finally going to
begin rising.
Regulation will continue to impact liquidity markets in 2016
and beyond, through the ongoing reduction in asset supply
driven by Basel III, initiatives to remove the concept of “too
big to fail”, which are making bank credit analysis ever more
complex, and through European money market fund reform,
where we expect a final regulation to be published.
This environment is creating both challenges and
opportunities for money market fund providers. On the one
hand money market funds, along with other money market
investors, are being impacted by the reduction in the supply
of short dated money market assets. On the other hand the
attractiveness of money market funds relative to short dated
deposits should grow further due to this same lack of supply.
We also expect these structural changes in the money
markets to lead to product innovation across the industry
leading to more investment options for our clients.
Can you give us an overview of liquidity markets in
2015?
2015 has been a challenging year, but it has been a very
interesting year as well, on a number of different levels.
The first key theme to highlight is the environment of ultra-
low to negative interest rates. Market expectations at the
beginning of the year were to see interest rate rises in both
the US economy and the UK, and for Eurozone rates to
continue to remain in negative territory. In fact we have seen
the timing of rate rises in the US pushed out to the end of
2015 and in the UK pushed out to the second half of 2015. In
the Eurozone expectations changed in October with the
expectation of interest rates moving further into negative
territory. All of this has been driven by the secular low, and
falling, inflation environment which we see globally. With
inflation levels below the targets set for the Federal Reserve,
the European Central Bank (“ECB”) and the Bank of
England, the monetary policy setting committee’s in the US
and the UK have been reluctant to raise interest rates and is
encouraging the ECB to consider further monetary policy
easing.
Another key area was the continued reduction in the supply
of assets available to investors in the money markets,
primarily driven by changes to bank regulation. Banks’
appetite for short-dated funding has continued to fall because
of this regulatory change, primarily driven by the Basel III
regulations. We have also seen a reduction in supply from
sovereign issuers, again in developed markets primarily. As
an example of this reduction in supply at the front end of the
market in fixed income, the weighting of US Treasury Bills as
a percentage of total outstanding US debt is at an all-time
low level.
The final factor which had an important impact on liquidity
markets in 2015 was the regulators’ efforts to remove the risk
of having to use taxpayer money to bail out banks in the
future. Because banks are one of the main issuers of the
short-term debt in which we invest, this concept of removing
“too big to fail” is fundamentally changing how we think about
analysing bank credit, and changing our process around
bank credit analysis.
What is your outlook for 2016 and beyond?
One area of focus for 2016 is on our outlook for interest
rates in the US, UK and Eurozone. This is a crucial area for
investors at the front-end, and for us as it is where we hold
the bulk of the assets in our MMFs. We expect to see a
change in interest rates across these markets in 2016.
With regards to the US market we do expect the Federal
funds rate to be raised in the near future by the FOMC,
based on the fact that, from a macroeconomic perspective,
the continued fall in unemployment, recovering growth,
positive survey data particularly in the services sector are all
supportive of a rate rise. Inflation clearly remains below the
Federal Reserve target, but because QE is still ongoing in
the US, we believe the Fed will look through current inflation
levels. Considering the fact that monetary policy is still very
accommodative, it is likely that, looking forward and based on
the broader macro picture, the Fed will expect inflation to rise
to their target level. We are therefore expecting the first rate
hike in the near future, although we think it will be a very
gradual, slow rise, and our portfolios have been positioned
accordingly to reflect this.
In the case of the UK, we have seen a significant change in
market expectations over 2015. Currently, the market is not
expecting the first rise in the base rate to occur before the
latter part of 2016. We are slightly more optimistic, as we
think the Monetary Policy Committee will raise rates earlier
than this. We have adapted our portfolio positioning
Figure 19: US money market supply forecast (USD trillion)
Source Bloomberg, Federal Reserve and J.P. Morgan as at end of October
2015
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accordingly: after running long-duration for most of 2015,
which was the right thing to do, we have begun to gradually
reduce duration in our portfolios, and we will continue to do
so as we move closer to the first rate rise.
In the Eurozone, we are expecting rates to move further into
negative territory in 2016, driven by two factors. Firstly, the
continued growth in excess liquidity in the Eurozone as the
ECB continues and probably extends the duration of its
quantitative easing programme (‘QE’), which we expect will
carry on into 2016. Secondly, rates will be impacted by the
rising probability of a further reduction in the ECB deposit
rate from -20bp to -30bp. Our portfolios have been aligned
with this view, running long duration throughout 2015, and we
expect this to continue in 2016 as rates fall further into
negative territory.
How do the secular and shorter-term macroeconomic
drivers impact your views for money market funds?
From a long-term perspective, one of the key drivers of
money market interest rates is inflation. In both developed
market and emerging market economies, we are
experiencing very low or falling inflation levels. At least in
developed markets, these levels have been standing below
the targets of monetary policy setters. This has been a key
trend over 2015, driven in particular by the reversal of the
commodity cycle, and we expect it to continue into 2016.
From a shorter-term perspective, over the next few months
we will be focusing on unemployment rates, earnings data
and surveys of manufacturing and service sectors, which are
currently pointing to growth. We will also be looking at
exchange-rate movements, which are important drivers in
monetary policy, and which have seen some significant
moves in 2015, particularly on the US Dollar and Euro trade
weighted indices. Of course, we will also be paying close
attention to any speeches and policy statements coming from
the key rate setters, i.e. the Federal Reserve Open Market
Committee, the ECB Governing Council and the UK
Monetary Policy Committee and their respective members.
The global money markets continue to face
unprecedented change, driven by regulation and
extraordinary Central Bank policies. How is this
impacting investors and the supply of cash investment
solutions?
There are three central themes driving the change in
global money markets. As mentioned earlier, the first is the
continued reduction in the supply of assets. We expect that
trend to continue in 2016 because we do not believe that
banks have optimised their balance sheets in terms of the
Basel III regulation, which they will continue implementing
over the next few years. Whilst they may be able to say they
can meet certain specific ratios, we think much more
optimisation is still required, which will reduce the supply of
assets in the money markets further still.
The second area driving change is money market fund
reform. This has been a long drawn-out debate and we
expect it to reach a conclusion in 2016. We have seen some
progress in the last year, with the European Parliament
communicating its position on money market fund reform,
improving on the prior position expressed by the European
Commission in 2013. We are still waiting for the European
Council to form its opinion, but we think they will reach a
decision in 2016 and that a final regulation will be published,
probably in the latter half of 2016. The overall impact the
reform will have on investors will of course depend on the
final text. We are cautiously positive at this stage that the
impact will not be as significant as initially expected.
Bloomberg, Goldman Sachs as of November 2015, Past performance is
no reliable indicator for future performance.
Figure 21: Estimated timetable for European regulation
(earliest possible dates)
Source: HSBC Global Asset Management. Data as of November 2015.
Figure 20: Commodity prices have fallen sharply this year
September 2013
European Commission proposes reforms for MMFs in Europe
following a cost / benefit analysis
Q1 2015
European Parliament votes through its proposal for reform of
MMFs in Europe
Q3 2015 – Q2 2016 (estimate)
European Council proposes position and votes on its proposal for
reform of MMFs in Europe
Q2 2016 – Q4 2016 (estimate)
Trilogue takes place
European reforms for MMFs announced
Q1 2017 – Q4 2017 (estimate)
Transition period before final implementation of regulatory
requirements
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Liquidity outlook
The third central theme concerns another area of bank
regulation mentioned earlier, which is that regulators are
trying to remove the concept of banks being “too big to fail”.
This initiative has significantly increased the complexity of
analysing bank credit, which poses a real challenge from an
investor’s standpoint. We believe that, as a consequence, the
importance of credit analysis is going to rise further in 2016
and beyond, as regulation makes it ever more complicated to
understand banks and the level of risk they pose.
What are the key opportunities and challenges you
see for liquidity funds over 2016, and in the longer term?
Firstly, in terms of the reduction in supply of liquidity
assets, as discussed earlier we do not believe that banks
have optimised their balance sheets; in fact we think a lot
remains to be done. That trend is therefore going to continue
well into 2016 and beyond, probably to the end of this
decade. This is going to have an impact on investors
because, at least to date, we are seeing a fairly consistent
level of demand for short term investments in the face of
supply reduction, which of course creates a challenge. For
money market funds, we believe this in fact presents an
opportunity as well because money market funds can play a
key role in providing an alternative to short-dated bank
deposits for investors.
Another area for focus is the potential for further
consolidation in the money market fund industry. This has
been a growing trend over the last few years, and because
scale is so important in this asset class, we expect
consolidation to continue going forward. If it plays out, it will
of course create some challenges for investors because
there will be fewer providers of money market funds,
reducing the choices available to them.
Finally, we believe money market fund reform will be both a
challenge and an opportunity in 2016. Whilst we do not know
what the final outcome will be, we do know it will transform
the market to some extent – this process will begin in the
latter part of 2016 if our timing expectations are correct. That
in itself is going to create challenges for money market fund
providers, investors in these funds and suppliers to funds,
who will all have to adapt. However, interestingly, we believe
it is also an opportunity because change naturally creates
opportunity. We expect to see change in the industry, in
particular with new and different products coming on offer to
provide solutions for clients’ short-term investment needs.
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Jonathan Curry,
Global CIO
Liquidity
Contributors
Chris is HSBC Global Asset Management's
Global Chief Investment Officer, to which he
was appointed in 2010. He was previously
CEO of Halbis, HSBC's active investment
specialist and joined HSBC's asset
management business in May 2003 as
Global Chief Investment Officer. Chris was
previously Global CIO of AXA Investment
Managers and also held the position of CEO
AXA Sun Life Asset Management. Chris
began his career with Prudential Portfolio
Managers (now M&G), where he worked in a
variety of investment management roles,
ultimately as Director of Investment Strategy
and Research. Chris holds First Class
honours degrees in Economics from Hull
(BSc) and Warwick (MA) Universities.
Jonathan is the Global Chief Investment
Officer responsible for HSBC Global Asset
Management's money market funds. HSBC
Global Asset Management has over USD63
billion of assets under management in
money market funds across 11 different
currencies (at end September 2014). HSBC
Global Asset Management offers both
CNAV and VNAV ESMA short-term money
market funds and US 2-a7 money market
funds. Jonathan is Chair of the Institutional
Money Market Fund Association, a member
of the Bank of England's Money Market
Liaison Group and the European Banking
Federation's STEP and STEP+ committees.
Bill Maldonado is the CIO, Asia-Pacific and
Strategy CIO for Equities and has been
working in the industry since joining HSBC in
1993. Based in Hong Kong, Bill oversees the
investment strategies in the region. Over the
past 18 years, Bill headed up a number of
investment functions, such as non-traditional
Investments (including passive indexation
mandates, fund-of-funds, structured
products and hedge funds) and Alternative
Investments teams. He then became
Strategy CIO, Equities and CIO for the UK in
2010. He holds a Bachelor of Science
degree in Physics from Sussex & Uppsala
Universities, a D. Phil degree in Laser
Physics from Oxford University and an MBA
from the Cranfield School of Management.
Joe Little joined HSBC Global Asset
Management in 2007. He is currently the
Chief Strategist, Strategic Asset Allocation
with global responsibility for Multi Asset
research and investment strategy. He was
previously a Fund Manager on HSBC's
Global Macro fund, running Tactical Asset
Allocation strategies across asset classes.
Prior to this, he was a Global Economist at
JP Morgan Cazenove, focused on Macro
and Asset Allocation Research. He holds an
MSc in Economics from Warwick University
and is a CFA Charterholder.
Xavier Baraton joined HSBC in September
2002 to head the Paris based Credit
Research team and became Global Head of
Credit Research in January 2004. From
2006, Xavier managed euro credit strategies
before being appointed as Head of
European Fixed Income in 2008 and as
Global CIO, Fixed Income in 2010. Prior to
joining HSBC, Xavier spent six years at
Credit Agricole Indosuez, including fi ve
years as Head of Credit Research. Xavier
began his career in 1994 in the CCF Group.
Xavier graduated from the “Ecole Centrale
Paris” as an engineer with a degree in
Economics and Finance in 1993 and holds a
postgraduate degree in Money, Finance and
Banking from the Université Paris I –
Panthéon Sorbonne (France) in 1994.
David Semmens is a Senior Macro and
Investment Strategist, based in London. His
main areas of expertise are global
macroeconomics, monetary policy, financial
markets, and labour economics. He was
previously Head of Macroeconomic and
Country Risk Research for Euler Hermes in
Paris and the US Economist within the
research department at Standard Chartered
Bank in both London and New York. He is a
CFA charterholder, with an Executive MBA
from Judge Business School, Cambridge,
and degrees in Economics from the
University of Warwick.
Chris Cheetham,
Global Chief
Investment officer
Joe Little,
Chief Strategist,
Strategic Asset
Allocation
David Semmens,
CFA, Senior
Macro &
Investment
Strategist
,
Bill Maldonado,
Global CIO
Equities,
CIO Asia-Pacific
Xavier Baraton,
Global CIO
Fixed Income
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Important Information: For Professional Clients and intermediaries within the countries mentioned below except Canada and for Professional
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contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any
jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management Macro & Investment
Strategy Unit at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition.
Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market
liquidity.
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past
performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein
should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such
investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in
some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic
conditions in the countries in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have
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Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore. HSBC Global Asset Management (Singapore)
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to 29, 32, 34 and 36 of the Financial Advisers Act).
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