HSBC Says Time to Sell Risk Assets That Are Ripe for Pullback

(Bloomberg) -- A combination of mixed macroeconomic data and stretched investor sentiment suggests it’s time to sell risk assets, according to HSBC Holdings Plc.

“Fundamentally, the macro data does not justify the recent outperformance of risk assets,” wrote strategists including Max Kettner in a note to clients Monday. “We think risk assets are ripe for a pullback in the coming weeks.”

The HSBC team said they are “tactically” underweight global equities and high yield corporate debt and overweight government bonds in their allocation recommendations. They have a preference for Treasuries, non-core European sovereign debt and developed market stocks, and remain “particularly” underweight emerging market equities.

U.S. stock benchmarks climbed to all-time highs Monday, and Treasuries tumbled, as investors shrugged off weak factory orders data amid optimism on trade. The MSCI AC World Index has risen 9% since its mid-August low and is up 19% year-to-date.

Both the upside and downside for risk assets will be “constrained” over the next three to six months, with economic growth just “muddling through,” the strategists wrote. That implies neither a global recession nor a sustained rebound in growth, they added.

“However markets will likely price the extremes, becoming too pessimistic or too jubilant,” they said. “So this remains a ‘sell-the-rally, buy-the-dip’ environment.”

To contact the reporter on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Teo Chian Wei, Joanna Ossinger

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