, pub-5475981771945671, DIRECT, f08c47fec0942fa0

The Big Reset: Global Outlook 2022

The Big Reset: Global Outlook 2022

After a V-shaped recovery driven by global reopening in 2021, HSBC Global Private Banking expects moderation in global economic growth and earnings improvement, but says it will remain respectable in the mid-cycle phase heading into 2022.

Global interest rates should remain well below normal despite faster tapering and rate hiI‹es by the Federal Reserve, extending the “low but volatile” rate environment into 2022. Positioning for solid mid-cycle growth, HSBC says there are risks on investment strategy with overweight allocation to gIobaI equities and preference for US, European and Asian equities.

Transition to the Mid-Cycle Phase

“As we head into 2022, the plobal economy has moved from the reopening to the mid-cycle stage. In that part of the economic cycle, equity market returns typically slow but remain respectable although market volatility is expected to rise.

“Our investment strategy positions for the policy transition towards gradual monetary and fiscal normalisation. We expect inflation will come down some time in 2022, and the five rate hikes that we expect from the Federal Reserve between March 2022 and September 2023 are still slower than what we have seen in the previous US tightening
cycles. This should remain supportive of our risK-on strategy with overweight allocation to global equities and preference for US, European and Asian equities. We seek selective carry opportunities in global high yield credit, as well as emerging marI‹et and Asian hard currency bonds,” says Fan Cheuk Wan, Chief Investment Officer for Asia, Global Private Banking and Wealth at HSBC.


“The Omicron variant adds uncertainty to the global supply chain disruptions, raising the risk that the fall in inflation could be delayed to H2 2022. We expect the Federal Reserve will begin discussing and formulating a plan in H1 2022 to shrink its massive balance sheet. The balance sheet reduction plan will IiI‹eIy begin in Q4 2022, so we do not expect a rate hike i n the quarter.

“Market concerns about inflation, policy tightening and Omicron risks will keep market volatility high in the coming months. To hedge policy tightening and inflation risks, we maintain our overweight position on Global Financials and Consumer Discretionary stocks and underweight Industrials stocks. We mitigate marI‹et volatility through our overweight position in hedge funds which bring downside protection and alternative sources of returns to our portfolios,” adds Fan.

“We think investors should focus on the big picture and their long-term investment goals, Iooking beyond short-term market noise and policy uncertainty. Big structural and multi-decade trends such as the net zero transition and digital transformation will create new growth industries. It is important for investors to position in long-term winners of the big reset, such as industry leaders in the biotech revolution, energy transition, Biodiversity conservation, Metaverse innovation, automation and artificial intelligence disruption,” highlights Fan.

Asia’s Future and China’s Great Transition

In response to pandemic headwinds, supply chain bottlenecks and the energy crunch, governments in Asia have ramped up investments in supply chain revamps and technology upgrades to remake their economies into a more sustainable and resilient growth model.

Being the home of 80% of global semiconductor manufacturing capacity, Asia is well placed to lead the world‘s electronics supply chain upgrade and technological innovation to meet unabated demand growth for chips resulting from the global wave of digitalisation and automation.

Accounting for 52% of global carbon emissions, Asia stands out as a gIobaI leader in energy transition and clean energy investments.

Asia currently has 45% share of global installed renewable capacity, well above 25% i n Europe and 16% i n North America. To meet China‘s climate goals, the International Energy Agency estimates China would need to invest more than RMB200 trillion (equivalent to 200% of GDP i n 2020) over the next four decades to achieve carbon neutraIity by 2060.

“China‘s pursuit of ‘common prosperity‘ and its net zero transition will drive a massive structural shift of its economic model from property construction towards high-end manufacturing and green investments. This reflects a significant change from its decades- long focus on quantity of growth towards the new strategic emphasis on high-quality, low- carbon and inclusive growth. China‘s great transition will bring significant impact on the Asian and global economies given it is the world‘s largest consumer of commodities, primary energy and chips,” says Fan.