HSBC Has a Playbook for Traders Hunkering for Growth Slowdown

(Bloomberg) -- HSBC Holdings Plc is growing bearish on the global economy and bullish on the safest bonds, the latest investment bank to offer a playbook for a downturn.

In a report published Wednesday, the bank’s multi-asset strategists recommend investors increase exposure to bonds of developed-market countries and pare credit risk. The advice echoes that of Nomura Holdings as the growth picture darkens.

“Combining the results of our new framework with our economists’ outlook for a slower global economy next year, we believe that 2019 will be challenging for risk assets, especially in the context of higher cross-asset volatility,” according to the HSBC team led by Pierre Blanchet. “Investors will need to invest much more tactically in the coming year.”

Highlights of the report:

  • Recommend switching from a short to long duration stance in DM rates, particularly in Treasuries
  • Decline in global equities has overshot slowdown signaled by PMIs
  • Even though macro-cycle indicators are “close to cycle highs,” a late-year rally in risk assets “is unlikely”
  • Recommend defensive stance in equities with focus on quality; reiterate Europe underweight
  • For bonds, “strongly positive on Treasuries,” bullish EUR core, but neutral EUR non-core
  • Overall negative on credit
  • In FX, see EUR-USD falling to 1.10 by end-2019, however JPY may strengthen vs USD on safe-haven allure
  • In EM FX, expect RMB to gradually depreciate, forecasting USD-RMB at 7.10 for end-2019

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