1、Spinning Around2025 Global Investment OutlookThe value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.For illustrative purposes only,this document is a global view of the recent evolution of the economic conditions.This

2、 is marketing support which constitutes neither investment advice nor a recommendation to buy or sell investment.This commentary is not the result of investment research and is not subject to legal requirements designed to promote the independence of investment research and is not subject to any pro

3、hibition on dealing ahead of its dissemination.Marketing CommunicationFor Professional Clients only and should not be distributed to or relied upon by Retail Clients.PUBLICForewordMacroTop of mindFixed income deep diveEquity deep diveMulti-asset deep diveForeword 03Macro outlook and market implicati

4、ons05Top of mind09Deep divesSectoral implications of Chinas policies13Materials supply a prerequisite for decarbonisation 17Nuances of small-cap investing21ContentsThis commentary provides a high-level overview of the recent economic environment and is for information purposes only.It is a marketing

5、 communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research.It has not been prepared in accordance with legal requirements designed to promote the independence of investment res

6、earch and is not subject to any prohibition on dealing ahead of its dissemination.The views expressed within this report were held at the time of preparation and are subject to change without notice.Any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSB

7、C Asset Management accepts no liability for any failure to meet such forecast,projection or target.2025 Global Investment Outlook2PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindForeword32025 Global Investment OutlookPUBLICForewordMacroFixed income deep diveE

8、quity deep diveMulti-asset deep diveTop of mindForeword from our Chief Investment Officer2025 Global Investment Outlook4Welcome to our 2025 Global Investment Outlook,titled Spinning Around.This reflects the dynamic and evolving nature of the global economy and markets,and our expectation for continu

9、ed rotations in market drivers ahead.The year 2024 has largely been characterised by positive developments disinflation,resilient growth and improving corporate profits.These factors have enabled central banks to pivot their policies,initiating a global cutting cycle in the latter half of the year.H

10、owever,as we look ahead,concerns about inflation are likely to linger and we do not foresee a return to the low inflation environment of the 2010s.Instead,we anticipate inflation settling in the 2-3%range for most major economies,with interest rate cutting cycles expected to be shallow in both the U

11、S and Europe.In advanced economies,we expect growth to converge.While the US economy shows some signs of cooling,the period of US exceptionalism that has characterised the post-pandemic economy may begin to fade.Europe is on a recovery path,but growth remains subdued.In contrast,Asia and frontier ec

12、onomies are projected to experience premium growth rates,with China benefiting from policy support and India maintaining its status as the fastest-growing large economy.From an investment standpoint,next year is likely to be marked by heightened volatility and policy uncertainty.In our view,tail ris

13、ks shouldnt be ignored.Currently,markets seem to prefer an optimistic outlook,focusing on assumptions around tax cuts,deregulation and their expected impact on future profits.What market valuations may not yet capture is a scenario of higher long-term rates and declining global trade,which could ult

14、imately weigh on company fundamentals.In terms of asset allocation,assets currently priced for perfection could be the most exposed,paving the way for a significant shift in market leadership.Previously overlooked sectors such as value stocks,small caps and emerging market assets are likely to gain

15、traction.This great rotation underscores the need to focus on local fundamentals and be nimble in our approach.Emerging markets,in particular,present compelling opportunities for diversification.Many of these markets remain undervalued and under-owned by international investors,meaning that any posi

16、tive developments can lead to strong market reactions.However,we must remain selective,as risks associated with a stronger US dollar,rising interest rates and geopolitical uncertainties could impact market sentiment.In this context,alternative asset classes,such as private credit,offer valuable opti

17、ons to provide diversification and resilience to a global allocation.In this publication,we expand on these views and delve into the key themes that will define 2025,including the nuances of small-cap investing,impacts of growing materials demand and the sectoral implications of Chinas economic poli

18、cies.We also explore recent developments in Japan,India and broader emerging markets.I trust that this outlook will provide valuable insights as you embark on your investment journey in 2025.Xavier BaratonChief Investment Officer4Source:HSBC Asset Management,November 2024.Any views expressed were he

19、ld at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Global Asset Management accepts no liability for any failure to meet such forecast,projection or target.“While a soft la

20、nding appears likely,our scenario also accounts for the potential tail risks that could materialise.”PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindMacro outlook and market implications2025 Global Investment Outlook5PUBLICForewordMacroFixed income deep diveE

21、quity deep diveMulti-asset deep diveTop of mindMacro outlook and market implications2025 Global Investment Outlook6Source:HSBC Asset Management,November 2024.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target wher

22、e provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.This shouldnt be considered as a recommendation to invest in the markets provided.Emerging and frontier markets paint a different picture,

23、evolving beyond their historical dependence on the US economy and monetary policy.Importantly,the emerging markets(EM)growth premium is expected to grow,which usually drives outperformance in EM assets.Valuation discounts support the opportunity,but acknowledged risks include a stronger dollar and d

24、ependence on China stimulus.With geopolitics potentially disrupting assumptions on the growth,profits,and inflation outlook,market volatility could easily pick up leaving the most expensive parts of the market vulnerable.We think alternatives present a crucial source of diversification.And with corr

25、elations between country performance breaking down,an active approach to geographic allocations can be an opportunity as we navigate expected rotations.Structurally higher inflation poses challenges,including for central banks who will be constrained in their easing cycle.This could weigh on growth

26、and profits.Globally,growth patterns are shifting too.US growth is now moderating and expected to cool further in 2025,signalling a potential end to its post-pandemic exceptionalism.While risks of an economic downturn in the next 12 months have receded of late,recent optimism underlined by the antic

27、ipation of tax cuts and deregulation under new leadership coexists with concerns around stretched valuations.Meanwhile,low levels of productivity growth and a weak manufacturing sector are hobbling Europes rebound,where economies largely remain in the slow lane.As we approach 2025,rising policy unce

28、rtainty,protectionism,and geopolitical tensions signal a more volatile and fragmented global economy.This is the backdrop of a multi-polar world with competing trade blocs.The most significant consequence for investors is a higher and more unpredictable inflation regime.Supply chains are being rerou

29、ted,shifting production to potentially higher cost locations.Separately,less international security cooperation will compel governments to spend more on defence,adding to the pressure on public finances.And geopolitical tensions can easily spill over into commodity markets.Figure 1:Spinning aroundIn

30、flation solved?Converging growth rates?Multi-polar worldMACRO IN MOTIONVolatility peaks in DMEAFE and EM discountsStocks“broadening out”MARKET ROTATIONS“All in”yields in creditDefensive real assetsHedge fund diversifiersALWAYSAN ALTERNATIVEThe US is likely to secure a soft landing amid rate cuts and

31、 ongoing disinflationAs US growth cools,it will look less exceptional versus the rest of the worldBut policy uncertainty is rising.And the world is becoming more multi-polarPolicy uncertainty means that investors need to be prepared for market volatilityBut markets are primed to rotate stock laggard

32、s can become leaders,and yield curves can steepenEmerging and frontier markets trade at a discount,and have potential to deliver bumper returnsA shallow rate cutting cycle creates yield opportunities in private creditsReal asset equity strategies provide a defensive route into the market Hedge funds

33、 can be a proxy allocation for bonds in this new market regimePUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mind2025 Global Investment Outlook7ScenariosMultiple macro scenarios emerge based on varying degrees of fiscal and trade policy implementation.Our baseli

34、ne scenario assumes moderate global growth with lingering inflation concerns translating to subdued rate cuts from central banks.This would coincide with modest trade policy changes and geopolitical disruption.In the US,this could mean selective tariff application coupled with tax cuts by the new go

35、vernment.In this case,markets might maintain stability,with steady growth across emerging and developed markets(DM).US equities could see continued strength,albeit limited by valuation concerns and interest rate sensitivity.As growth stabilises and inflation remains under control,we expect to see hi

36、gh-quality equities outperforming.This scenario is already reflected in the current market sentiment.Further support comes from moderating wage growth,which has helped corporate profit margins.Companies have been managing labour costs by reducing hours rather than laying off employees,allowing them

37、to maintain profitability despite tight labour conditions.This resilience has helped sustain corporate profits and market optimism,supporting a soft landing economic scenario.We expect GDP and profit growth to converge in advanced economies,suggesting that investment markets outside of the US have r

38、oom to perform.Neglected parts of global stock markets such as value stocks have an opportunity to catch up.In EM,where growth will be stronger especially for those less reliant on US exports we could see outperformance on the back of favourable valuations.An alternative scenario is more aggressive

39、fiscal and trade policy,with wider geopolitical disruption.This scenario could boost US growth in the short term due to fiscal stimulus,but also introduce inflationary pressures,potentially necessitating tighter monetary policy.EM and export-oriented economies would face challenges as global trade t

40、ensions escalate,with greater effects on those highly exposed to US demand,such as Mexico,Canada and select Asian economies.In this high-inflation,high-tariff scenario,investors might seek shelter in commodities and inflation-linked assets,while riskier assets may suffer due to escalating trade poli

41、cy risks.7*7-day reverse repo rate.Source:HSBC Asset Management,Bloomberg,November 2024.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset

42、 Management accepts no liability for any failure to meet such forecast,projection or target.Figure 2:Economic scenariosGrowthInflationPolicyUSEurozoneUKJapanChinaIndiaHSBC AM2025 Fiscal impulseEnd 25:3.50-4.00%Mild dragEnd 25:1.75-2.25%NeutralEnd 25:3.25-3.75%Mild boostEnd 25:0.40-0.75%DragEnd 25:1.

43、20-1.40%*BoostEnd 25:5.75-6.25%Mild dragConsensus20242025Consensus202420252.5%2.4%2.5%2.5%0.4%4.7%2.1%2.0%2.4%2.1%1.1%4.3%2.7%0.8%0.9%-0.2%4.8%6.8%2.1%1.2%1.4%1.2%4.5%6.6%PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindSource:HSBC Asset Management,November 20

44、24.House view represents a 12-month investment view across major asset classes in our portfolios.Views reflect our long-term expected return forecasts,our portfolio optimisation process and actual portfolio positions.These views are for general information purposes only and do not constitute advice

45、or a recommendation to buy or sell investments.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any

46、failure to meet such forecast,projection or target.Market implicationsMarket implicationsA shallow rate-cutting cycle and converging growth could set up a rotation in markets.With US valuations stretched,broadening profits growth could see a rotation within US equities towards neglected or defensive

47、 sectors that stand to benefit from policy actions,such as financials and industrials.Financials in particular would benefit from potential deregulation and increased M&A,while some industrials may benefit from tariffs,even with higher input costs.Additionally,less globally exposed companies may be

48、shielded from trade policy impacts,which could continue to support recent resilience in small-cap stocks.We also know from history that value stocks can outperform growth in a backdrop of higher inflation,and continued growth driving nominal profits.With growth more evenly distributed across the glo

49、be,a strong valuation case remains for EM and non-US DM.The worlds premium economic growth rates will be in Asia and frontier economies,with India maintaining its position as the fastest growing major economy.Beyond India,the multi-polar world presents opportunities for many Asian economies to explo

50、it a restructuring of global trade patterns as production is friend-shored.Although EM should not be treated as one bloc amidst vastly different situations,the US dollar outlook will play a role across EM.Should US dollar strength at least moderate,this supports potential for emerging assets.With th

51、e yield curve set to structurally steepen,fixed-income returns will increasingly hinge on income components rather than capital appreciation although less inflation risk and more pronounced growth risks in Europe support the case for duration assets there.We think shorter duration credits,like asset

52、-backed securities,look interesting.They benefit from a higher-for-longer scenario given their floating rate nature.Securitised credits have high starting income levels and exhibit low correlations to traditional fixed income making them a useful diversifier for portfolios.There are favourable oppor

53、tunities from high all-in yields elsewhere in credits,with fundaments solid,but many segments are priced for perfection.This leaves little buffer against any downturn in credit quality.A higher-for-longer rate environment also challenges traditional 60/40 portfolio constructs,with government bonds l

54、osing some of their hedge appeal.This adds to the benefits of alternatives like private credit and real assets,alongside the uncorrelated returns of hedge funds.(pPositive/1Neutral/qNegative bias)2025 Global Investment Outlook8Figure 3:Views per asset classEquitiesGovernment bondsCorporate bondsComm

55、odities,alternatives and FXAsian assetsAsset ClassHouse viewAsset ClassHouse viewAsset ClassHouse viewAsset ClassHouse viewAsset ClassHouse viewGlobal1/pGlobal 1/pGlobal investment grade1/p GoldpPan-Asia government bondspUS1/pUS10yr1USD IG1/p Oil1Asia ex-Japan equities1/pUK1UK10yr1/pEUR&GBP IG1/pPri

56、vate creditppChina ApEurozone1/qGerman 10yrpAsia IG1/pReal assetspIndia1/pJapanpJapanqGlobal high-yield1/qHedge fundsppASEAN1/pEmerging markets(EM)p Inflation-linked1/pUS high-yieldqPrivate equity1Hong KongpLatamqEM(local currency)pEurope high-yieldqUS dollar1/qAsia FX1/pFrontierp Asia high-yield1/p

57、Securitised creditppPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindTop of mind2025 Global Investment OutlookPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindHas private credit reached its peak?In recent months,there ha

58、ve been many headlines written about private credit particularly around risks.Potential defaults are frequently cited,alongside the asset class expansion,as a source of risk.This argument suggests that credit quality has deteriorated as the asset class expanded with pressure on managers to deploy ri

59、sing volumes of committed capital.However,data suggests that defaults have remained relatively consistent since interest rates began to increase,averaging 2.5%each quarter since the beginning of 2022,taking into account non-accruals and interest modifications1.While concerns over private credit defa

60、ults are legitimate,and we remain vigilant,evidence suggests these fears have been somewhat overstated.A further concern centres around potential reductions in demand while interest rates fall.One explanation for still solid demand and activity is that,while rates are on their way down,it is unlikel

61、y they will get close to the very low levels experienced during the 2010s.Should interest rates begin to normalise around the 2.5%to 3.5%level,that leaves significant room for private credit assets to deliver attractive all-in yield to investors.Premium spreads inherent in private credit investments

62、 provide a buffer as yields decline,while floating-rate structures enhance the diversification appeal as inflationary pressures persist.Top of mind2025 Global Investment Outlook10Despite experiencing a significant increase,just 6%of US corporate lending is private credit.In our view,given its charac

63、teristics,there remains considerable upside for future growth particularly when considering that the US is arguably the most mature private credit market and penetration is still low.This means there are a wide range of options available to private credit managers,supporting opportunities in the ass

64、et class.What are key considerations for emerging markets(EM)in 2025?Fed cuts and China stimulus,alongside a starting point of hefty valuation discounts,has meant a good year for a broad range of EM asset classes.This backdrop hasnt changed much as we head into 2025.And importantly,the EM growth pre

65、mium is expected to increase,which usually drives outperformance in EM assets.Still,they remain unloved and under-owned by international investors,reflected in low price-to-earnings(PE)ratios and high real yields.There are several key risks contributing to investor hesitancy.Firstly,there is the pot

66、ential for higher-for-longer US interest rates,which could diminish the appeal of higher-yielding international assets and exert upward pressure on the dollar.A stronger dollar could lead to capital outflows from EM,particularly if US economic growth outpaces expectations.Figure 1:EM-DM relative gro

67、wth and stock market performanceSource:Macrobond,HSBC Asset Management,November 2024.Source:HSBC Asset Management,November 2024.Past performance does not predict future returns.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projec

68、tion or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.1-Private Debt:Few Facts Behind the Fears|Neuberger Berman()Additionally,there is risk of Chinese authorities under-del

69、ivering on promised policy stimulus,or a ramp-up of protectionist policies hurting global trade.Simply the uncertainty around policy from both the US and China could weigh on confidence.Investors must do their homework when allocating to EM,given regions are performing so differently and are facing

70、different challenges.The multi-polar world presents risks but also opportunities for countries as the global economy is rewired.ASEAN,for example an already fast-growing region is a potential major beneficiary of higher US-China tensions as production is friendshored.-1012345650751001251501752002252

71、501988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028 2032Index,2003=100EM-DM growth,%EM/DM stock market index,lhsEM less DM GDP growth(+IMF forecast),lagged 4 quarters,rhsPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindThe IT and banking sectors,in partic

72、ular,have emerged as key growth drivers,underpinned by strong earnings and digital transformation.Additionally,small and mid-caps,buoyed by structural reforms and innovation,continue to garner attention despite higher valuation risks.The Indian economy,too,has shown resilience despite global challen

73、ges.The economy benefits from targeted government investment,expanding infrastructure and a burgeoning middle class.These factors,combined with its domestic demand-orientation and minimal reliance on US exports,position India as one of the least exposed major economies to any global trade disruption

74、s.Notably,there has been a gradual decoupling of Indias economic and financial markets from major global markets,including the US,Europe and Japan.This has been demonstrated by a lower correlation of MSCI India with these major markets compared to the past five years,presenting appealing diversifica

75、tion benefits.Past performance does not predict future returns.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no li

76、ability for any failure to meet such forecast,projection or target.2-Refintiv/LSEG data,November 2024.The Indian equity market has now become the 4thlargest in the world,with its market capitalisation tripling to roughly$5 trillion over the last decade.2Yet,a stronger global standing may not prevent

77、 a continuation of short-term volatility due to foreign capital flows influenced by a variety of factors,including additional stimulus measures from China,key policy announcements from the new US administration,relative market valuations and the outlook for the Indian Rupee.Over the long term,it is

78、anticipated that foreign flows will align more closely with the trajectory of corporate earnings growth in India.The Reserve Bank of Indias calibrated monetary stance,and the governments emphasis on fiscal prudence,will also be instrumental in mitigating some of the headwinds.Thus,Indian equities sh

79、ould continue to offer a blend of diversification benefits and growth potential for portfolios with a long-term investment horizon.2025 Global Investment Outlook11What does the recent volatility in Indias equity markets mean for its outlook?In recent months,Indian equity markets have experienced not

80、able volatility,primarily driven by a shift in foreign investor sentiment.After a period of robust inflows,foreign investors have turned net sellers of Indian equities,a trend that can be partially attributed to a renewed focus on China.Since China implemented a series of stimulus measures in Septem

81、ber,it has recaptured the attention of global investors while experiencing its own period of pronounced market swings.A moderation in short-termeconomic indicators and expectations of a softer earnings season in India have also contributed to the reversal of prior tactical inflows into equities,lead

82、ing to an increasing divergence in capital flows.Exceptionally strong net domestic inflows,totalling$56 billion thus far in 2024,have effectively more than compensated for the$1.9 billion of foreign outflows.The result has been a rise in domestic ownership that has surpassed foreign ownership over t

83、he last few years.Despite the short-term turbulence,the MSCI India index in USD terms has appreciated by double digits as of November,underscoring the resilience and strength of domestic investor sentiment in the face of external volatility.Optimism is supported by superior earnings growth potential

84、 and high corporate profitability.Figure 2:Next twelve-month EPS(indexed to 100)Source:Goldman Sachs,as of August 2024.Figure 3:MSCI India correlation with respective marketsCorrelation is based on weekly price returns in USD terms.MXAPJ refers to MSCI Asia ex Japan Index.AC World refers to MSCI All

85、 Country World.Source:MSCI,HSBC Asset Management,as of 16 September 2024.0%10%20%30%40%50%60%70%80%EMMXAPJACWorldEuropeUSJapanChina5-year correlationYTD correlation601201802403003604204802003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023IndiaS&P 500AsiaEMPUBLICForewordMacroFixed income deep dive

86、Equity deep diveMulti-asset deep diveTop of mindSource:HSBC Asset Management,November 2024.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC As

87、set Management accepts no liability for any failure to meet such forecast,projection or target.This information shouldnt be considered as a recommendation to invest in the sectors or companies provided.Japan has historically been synonymous with export-oriented giants.Today,its semiconductor and aut

88、o industries are being bolstered by a weaker yen and geopolitical realignments,including friendshoring.The resurgence of the made in Japan trend has led to reshoring of high-value-add manufacturing,revitalising its semiconductor ecosystem.Amid an acceleration of momentum in AI,the Japanese governmen

89、t has been facilitating investments to support the opportunity.For instance,the government has allocated over$3 billion for the development of new chip-making facilities.Meanwhile,domestically-oriented sectors such as financials and utilities are also gaining traction,showing strong earnings momentu

90、m.Yet,challenges persist.Japans equity market remains heavily influenced by external factors,notably the dollar-yen exchange rate and trade dynamics with the US and China.While a weaker yen has traditionally supported exporters,recent data suggests diminishing sensitivity.Additionally,competition fo

91、r foreign capital inflows between Japan and China underscores the complexity of sustaining equity performance.Lastly,the sustainability of its reflation regime will remain a key criteria in Japans bull thesis.Overall,Japanese equities present a compelling investment case rooted in inexpensive valuat

92、ions and a reflating economy,supported by improving governance standards aligned with shareholder interests.However,this summers turbulence around the unwinding of the Yen carry trade shows us that navigating this market demands vigilance towards external developments.2025 Global Investment Outlook1

93、2What is behind the revival of Japanese equities?Japanese equities are garnering renewed interest,propelled by structural reforms,attractive valuations and macroeconomic shifts.Recent data shows the MSCI Japan Index revisiting levels unseen since 1989,highlighting a potential turning point.However,i

94、t is necessary to closely examine the economic policies,market positioning and external factors for understanding the dynamics at play.Japans economic revival owes much to reforms initiated during the Abenomics era and extended through the Value-Up Program.These initiatives have spurred meaningful c

95、hanges in corporate governance which in turn have led to capital allocation efficiency,heightened shareholder returns and improved return on equity(ROE).Additionally,policies incentivising retail participation in equities,including tax-advantaged Nippon Individual Savings Accounts(NISA),have been ai

96、med at mobilising the massive$9 trillion held in household savings.Valuation metrics further reinforce the case for Japanese equities.Despite outperforming most developed markets in earnings-per-share(EPS)growth over the past decade,Japanese stocks trade at a significant discount relative to both US

97、 equities and global peers.Importantly,earnings growth remains a primary driver of returns,reflecting the structural improvements within Japanese companies.This means that the undervaluation,coupled with a lack of multiple expansion,presents not just an attractive entry point but signals the potenti

98、al for re-rating.Figure 5:12-month forward earnings growth indexPast performance does not predict future returns.Source:Bloomberg,HSBC Asset Management,October 2024.Values rebased to 100 as of December 2012.Figure 4:MSCI Japan performancePast performance does not predict future returns.Source:Bloomb

99、erg,HSBC Asset Management.Data as of October 2024.Index values rebased to 100 as of December 1987.1006001100160021002600204060801001201401601801987199319992005201120172023MSCI JapanMSCI Japan in USDMSCI US(rhs)501001502002503003502012201420162018202020222024JapanUSEuropeAPACPUBLICForewordMacroFixed

100、income deep diveEquity deep diveMulti-asset deep diveTop of mindSectoral implications of Chinas policies2025 Global Investment OutlookPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindSectoral implications of Chinas policiesThis program effectively transfers so

101、me of the off-balance-sheet LGFV debts onto the balance sheets of local and central governments.The decline of the property market has severely impacted land sales,which are local governments main source of revenue,exposing their fragile fiscal position with a budget shortfall of approximately RMB 3

102、 trillion,or 2.5%of GDP per year vs.2019-20 levels.Authorities have been grappling with rising LGFV debt levels,which have reached over RMB 60 trillion a significant portion of Chinas total debt estimated to be around RMB 300 trillion.This debt swap is particularly important as it aims to convert sh

103、ort-term debt into long-term LG bonds,thereby easing the immediate repayment pressures on local governments and lowering interest costs.Additionally,this initiative is expected to significantly reduce potential defaults,thereby stabilising LG/LGFVs that have been under significant strain.The second

104、focal point for policymakers is indeed the property sector.A significant concern is the substantial unsold inventory in the market which poses a barrier to a robust recovery.In recent months,China has continued to face a combination of economic challenges characterised by a sluggish property market,

105、heavily indebted local governments(LG),and a banking sector under scrutiny.This scenario has led to the more urgent implementation of various policies designed to ease immediate financial pressures on these three sectors,and a few others.The announcements made at the end of September aim,most import

106、antly,to address the fiscal stress faced by local governments.A pivotal measure in this regard is the 10 trillion RMB debt swap over the next three to five years,which allows local governments to issue special-purpose bonds to repay local government financing vehicles(LGFVs)debts.“Recent policies em

107、phasising local government financing,stabilisation of the property sector and resilience of the banking system underscore their interconnections.”2025 Global Investment Outlook14Source:HSBC Asset Management,November 2024.Any views expressed were held at the time of preparation and are subject to cha

108、nge without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Global Asset Management accepts no liability for any failure to meet such forecast,projection or target.Figure 1:Collapsed property market led to significant and persistent

109、 fiscal gapSource:National Bureau of Statistics,MOF,WIND,Huaxi Securities(*Annualised from September 2024 data).012345678910201320142015201620172018201920202021202220232024(*)RMB TnLand auction sales-private sectorOther land sales/related incomeLand auction-LGFVsInitial local managed-funds budget pr

110、ojectionEst.LGFV debts interest paymentPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mind1%2%2%3%3%3%6%6%7%8%10%10%15%25%0%20%40%MiningPersonal consumption loanConstructionCredit cardsRetail and wholesaleReal-EstateOther corpsPersonal business loansProduction a

111、nd supply of power and waterWater,environment and public utilitiesLeasing and commercial servicesManufacturingTransportation and logisticsResidential mortgageAccording to market data,the average inventory level in key cities stands at 33 months,compared to a long-term average of around 15 months.Thi

112、s overhang poses a substantial barrier to a robust recovery in the property market,and further targeted policies will likely be necessary to address these challenges effectively over the long term.Additionally,tax reforms could provide a short-term boost,particularly benefiting state-owned enterpris

113、es(SOEs)focused on first and second-tier cities.However,a genuine recovery may take at least two years,with developers holding idle land likely to be the first batch to benefit.The Chinese government has also signalled its intent to stabilise the property market,emphasising the need to halt the decl

114、ine and stabilise prices.This strong signal has prompted various departments to launch supportive policies.However,execution risks remain high,as past rounds of policy easing have shown that local governments often struggle to implement measures effectively.Unless these measures are clearly tied to

115、key performance indicators for local governments,the desired outcomes may not materialise.Impact on the banking sectorThe property sectors struggles are compounded by the fact that approximately 30%of the total loan book of Chinese banks is tied to real estate1,including mortgages and developer loan

116、s.This exposure raises concerns about the overall health of the banking sector.2025 Global Investment Outlook15Stress tests conducted on various risks,including those associated with commercial real estate(CRE),LG/LGFVs,and small and medium-sized enterprises(SMEs),indicate that banks are most sensit

117、ive to LG/LGFVs risks.The average non-performing loan(NPL)ratio for LG/LGFVs exposures is currently low,ranging from 0.5%to 1%,while the average NPL ratio in the first half of 2024 is projected to be around 1.2 with specific sectors,such as CRE,exhibiting higher ratios2.However,this may not fully re

118、flect the underlying risks due to recent debt relief programs and asset quality relaxation policies.One of the key policy measures announced by the Chinese government is the planned recapitalisation of the six major SOE banks,which is expected to amount to approximately RMB 1 trillion.This figure re

119、presents about 0.95%of the risk-weighted assets of these banks.While this recapitalisation is viewed as credit positive in the near term,its long-term benefits depend on the size and utilisation of the funds.The overarching goal of the new policies is to stabilise the banking system and stimulate do

120、mestic demand.This includes support for LG/LGFVs and SMEs,with an intended move to support the execution of property policies.The banking sectors health is indeed vital for overall economic stability,and this capitalisation is seen as a necessary step to ensure that banks can absorb potential losses

121、 while continuing to lend.Importantly,the Chinese regulators perform annual stress tests on the banking system,for early identification of key credit risks and weak links in the system.Despite these measures,numerous structural issues remain,and the execution of current policies is likely to be a mu

122、lti-year process.Source:HSBC Asset Management,November 2024.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Global Asset Management accepts n

123、o liability for any failure to meet such forecast,projection or target.1Industrial&Commercial Bank of China as proxy.2Seven major SOE banks.Large bank48%Mid size bank23%Small size bank 26%foreign bank 1%Rural Credit Cooperatives2%Figure 2:Bank industry by total asset sizeSource:China Financial Stabi

124、lity Report 2023Source:HSBC Asset Management,June 2024.Figure 3:Typical loan book of a large bankPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindThis suggests that the replacement cycle for these devices is driven more by technological upgrades than by trade-

125、in programs.Potential geopolitical tensions,particularly with the United States,looms large over the hardware tech sector.Any increase in tariffs on electronics could disproportionately affect companies that have significant exposure to the US market.Additionally,the possible rollback of the CHIPS A

126、ct could hinder semiconductor companies,impacting their ability to secure funding for US investments.While further sanctions and trade restrictions from US remain tail risks,potential delisting risks from US should be manageable given most dollar issuers are now dual-listed in both the US and Hong K

127、ong.However,the potential for a sector-wide sell-off,similar to 2018,remains a concern if tensions escalate beyond market expectations.Other sectorsMacroeconomic headwinds and geopolitical tensions have altered consumer behaviour,leading to a consumption downgrade that may not be easily reversed.The

128、 governments commitment to fiscally support consumption in the coming years may revive sentiment,with the market expecting fiscal support ranging from 0.5 to 1 trillion in 2025.Despite these challenges,selected sectors like domestic travel and EVs thrive under current policy.2025 Global Investment O

129、utlook16Internet and technology The Chinese governments recent stimulus measures are expected to yield positive short-term earnings for Internet companies.A notable initiative is the introduction of a trade-in subsidy program,which allocates approximately RMB 150 billion($21 billion)from August to D

130、ecember.This program aims to boost consumer spending on electronics and home appliances,with sales in these categories reportedly increasing by nearly 40%year-on-year in October,up from 20%in September.E-commerce platforms are also poised to be the primary beneficiaries of this consumption recovery.

131、For instance,online retail sales of goods grew by 11.3%year-on-year in October,compared to 6.4%in September.In contrast to these sectors,the hardware technology segment has yet to experience the same level of positive impact from consumption initiatives.Recent data indicates that smartphone shipment

132、s in China remained flat year-on-year in the third quarter,while PC shipments declined by 10%.Find out moreIn our latest Fixed Income Insights Source:HSBC Asset Management,November 2024.Any views expressed were held at the time of preparation and are subject to change without notice.While any foreca

133、st,projection or target where provided is indicative only and not guaranteed in any way.HSBC Global Asset Management accepts no liability for any failure to meet such forecast,projection or target.This information shouldnt be considered as a recommendation to invest in the sector shown.“While the ou

134、tlook remains uncertain,these proactive measures provide a framework for potential recovery.”Looking aheadOverall,while there are positive signs emerging from Chinas technology and consumer sectors,the landscape remains complex and fraught with challenges.For investors,a selective approach should pr

135、evail,particularly in the hardware tech sector,where geopolitical risks could significantly impact performance.“As we move into 2025,the focus will shift to how these policies unfold and their impact on domestic markets.”PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveT

136、op of mindMaterials supply a prerequisite for decarbonisation 2025 Global Investment OutlookPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindMaterials supply a prerequisite for decarbonisation 2025 Global Investment Outlook18After spending 100 years developing

137、 a world powered by fossil fuels,in the next 25 years we are going to develop an integrated power system that relies on renewables.This is very complex,given that it means creating a power system that relies on many forms of power,after building a global system based on one.And,importantly to this a

138、nalysis,the new power sources are material-intensive.Currently,renewable energy sources account for less than a fifth of global power generation,with fossil fuels still dominating the energy landscape.To achieve net-zero emissions by 2050,this ratio must be inverted.This necessitates a comprehensive

139、 rethinking of how we consume,generate,store and utilise power.Accordingly,decarbonisation remains a compelling long-term theme for investors and presents a broad,often overlooked,opportunity set for materials companies.“Materials demand is projected to grow exponentially,fuelled by the decarbonisat

140、ion investment cycle and shifts in how we live.”Source:HSBC Asset Management,IEA,September 2024.Based on a Safety4Sea diagram.For illustrative purposes only.Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where

141、 provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.For informational purposes only and should not be construed as a recommendation to invest in the specific country,product,strategy,sector o

142、r security.Decarbonisation also overlaps with other long-term themes such as the digital transformation and urbanisation,with the materials sector playing a vital role across them.Decarbonisation itself can be categorised into two primary streams:mitigation and adaptation.Mitigation encompasses clea

143、n energy,the electrification of transport and the corresponding infrastructure which drives demand in a number of materials,beyond the more obvious ones such as copper.Adaptation ties into how we build and live in communities,how we use data to gain efficiencies(e.g.AI),and much more.Again,this invo

144、lves a broad range of materials needs.Figure 1:A structural shift in demand for natural resources as the decarbonisation journey strains supplyPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mind2025 Global Investment Outlook19Mitigation a big consumer of materia

145、lsExamining the components of clean energy technologies can help us comprehend the materials required for a successful transition.For instance,a wind turbine requires a diverse array of commodities including concrete,steel,aluminium,rare earth elements and even plastics.Notably,offshore wind farms r

146、equire six times more steel per megawatt of power generated than traditional thermal coal plants.Such needs highlight the complexity of the energy transition and the vast quantities of materials that will be required to make it a reality.Even clean energy technologies are not entirely free from foss

147、il fuel dependence.Sticking with our look at wind turbines,they require synthetic lubricants derived from oil to operate efficiently.These lubricants can be created from bio-based products,but would then be taking away food supply.The finite nature of these resources underscores the challenges which

148、 must be addressed.Urbanisation contributes to demandProjections indicate that 9 billion people will reside in cities by 2050 roughly double that of today.1As urbanisation accelerates,the demand for materials will only intensify.Urbanisation is not merely about population growth;it is about rethinki

149、ng how we sustainably design and inhabit our cities,including the concept of smart cities which is gaining traction.This rethink of how we live in cities also involves how people move between cities,through high-speed rail networks and other means.The evolution will require new materials,including r

150、are earths,vanadium,titanium and hydrogen to support the infrastructure of the future.The materials we consume in urban environments will also need to adapt to changing climate patterns.As we confront the realities of extreme weather events and shifting environmental conditions,our approach to urban

151、 planning and construction must evolve.This presents clear challenges,but also opportunities for the materials sector.Mining companies starting from a deficitThe International Energy Agency estimates that to achieve net-zero emissions by 2050,the world will need to triple its renewable energy capaci

152、ty by 2030.Yet,we are already behind the proverbial eight ball in scaling up supply of key materials to facilitate this alongside broader demand growth.In response to past boom and bust cycles in demand,mining companies have more recently become much more disciplined in their capital allocation appr

153、oach,avoiding investment in mines that would produce an oversupply from their output.This has meant healthy balance sheets amidst a renewed focus on shareholder returns producing dividend yields of 5-10%alongside stock buybacks.However,the need for new mines is intensifying.The scale of the deficit

154、is such that 27 new copper mines at 300 kilotons per mine would need to be built by 2030,to fill the gap for projected demand of one of the most important transition metals,given its outsized role in electrical wiring and energy grids.As it stands today,the industry is now grappling with aging mines

155、 and declining grades.For instance,the average copper grade in mines has halved since the early 1990s,2and many mines are now operating at depths that pose significant technical challenges.Any views expressed were held at the time of preparation and are subject to change without notice.While any for

156、ecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.For informational purposes only and should not be construed as a recommendation to invest in the specific c

157、ountry,product,strategy,sector or security.1 World Bank,April 2023.2 S&P Global Market Intelligence,Wood Mackenzie,2024.Valuations may underappreciate the long-term opportunityEurope has the highest percentage of materials and mining companies that are exposed to this theme.As a group today,their pr

158、ice-to-book ratio sits a full standard deviation below its historical average relative to the STOXX Europe 600.Sagging valuations of late have been in part due to shorter-term issues such as growth concerns in China and questions over the size and effectiveness of stimulus there,as a major consumer

159、of metals and materials.The unknown implications of a new US administration on global trade and growth has been another recent factor.However,we see a longer-term,enduring demand thesis that largely overrides these shorter-term challenges and is strongly connected to decarbonisation and the material

160、s needed to achieve net-zero targets and broader societal shifts.Figure 2:Supply imbalance continues to growSource:HSBC forecasts,Morgan Stanley historic data,November 2024.-4.0-3.0-2.0-1.0-1.0 2.020202021202220232024f2025f2026f2027f2028f2029f2030fAluminiumCopperMarket Balance(mt)Copper=8%of FY30 su

161、pplyAluminium=5%of FY30 supplyPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mind2025 Global Investment Outlook20As a key enabler of much of the technological and societal change currently in early stages,we view the opportunity in materials as structural in the

162、 years ahead not a cyclical play as they have been treated in the past.However,even looking more near-term offers a positive view,with earnings upgrades starting to come through.The above reflects a shift away from defence in the form of precious metals companies benefitting from shorter-term safety

163、 demand with a move more onto the front foot as a sector.Positive momentum in the form of earnings upgrades starting to come through comes alongside the underlying thematic demand drivers and inexpensive valuations.Accordingly,we think there are particular opportunities which make this area of the m

164、arket more relevant to investors than has been the case in years past.Mining and AIWhile not two topics you would typically discuss together,materials and AI do increasingly need to be considered alongside each other given corresponding impacts.Coming back to copper as a key component of power grids

165、,huge amounts of it will be needed as more data centres consuming more power to drive AI advancements are built out across the globe.We estimate around 300,000 tons of copper is needed to supply new data centre demand alone over the next 10 years that would require a new mine built in the US every y

166、ear to support this demand growth.Another element of the power need for data centres is that it is consistent.Clearly,one of the problems with relying on renewables such as wind and solar is that theyre intermittent.Battery storage cant address the problem by itself.This is where nuclear power appea

167、rs to be coming into play as a more prominent consideration for clean energy.Recent deals by data centre hyperscalers such as Microsoft,Google and Amazon to secure access to nuclear power highlight this trend,built out of a necessity to address growing power needs amidst net-zero commitments and lim

168、itations of existing power grids or renewable energy supply elsewhere.As the tech industry increasingly engages with the nuclear sector,the demand for a broad set of raw materials such as boron,graphite,and glass will accelerate.Again,growing need for such materials is typically overlooked or undera

169、ppreciated as a side effect of the growth in AI.This supports opportunities not yet priced into markets4%-2%3%9%3%-2%-4%-2%0%2%4%6%8%10%DiversifiedsBase MetalsPrecious Metals2024e2025eUnique opportunity in equity marketsThe imperative for transition resources in a decarbonising world is clear,driven

170、 by both mitigation and adaptation needs.We will consume vast amounts more of commodities that are in structural deficit today,than we have done in the past 50 years.That will mean prices need to move higher to incentivise miners to build more mines and produce more of those critical raw materials.W

171、hile higher commodities prices would certainly be unhelpful for inflation paths and potential returns elsewhere in equity markets,it would support better earnings and returns for mining and materials companies a useful component to consider within broader equity portfolios.Further tailwinds can be f

172、ound in the form of AIs heavy power consumption and the ongoing buildout of data centres globally.Long-term thematic considerations alongside inexpensive valuations present materials companies as a unique story in global equity markets.We think these deep cyclical sectors will become more structural

173、 investments going forward,presenting an opportune time to pursue opportunities ahead of that shift gaining steam.Source:Morgan Stanley,October 2024.Figure 3:Consensus mining EBITDA upgrades/downgradesAny views expressed were held at the time of preparation and are subject to change without notice.W

174、hile any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.For informational purposes only and should not be construed as a recommendation to invest in th

175、e specific country,product,strategy,sector or security.“For every gigawatt of power in the US that goes into data centres,about 65,000 tons of copper is needed.”PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindThe nuances of small-cap investing2025 Global Inve

176、stment OutlookPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindMoreover,small-caps are known for their higher skewness in returns.The data below reflect the more frequent occurrences of exceptionally high individual stock returns.However,this lottery effect se

177、ldom translates effectively at the index level.Only 3%of US small caps transition to large caps annually,highlighting the difficulty in capturing widescale gains at the index level.Hence,a nuanced approach is needed to achieve the desired portfolio objectives.The nuances of small-cap investing2025 G

178、lobal Investment Outlook22Small-cap stocks have long been viewed as a promising avenue for investors seeking growth and higher potential returns.Consisting of many earlier-stage companies,small caps often exhibit higher growth potential compared to their larger counterparts.However,small-cap investi

179、ng is complex and multifaceted,influenced by regional and structural factors that must be considered as part of portfolio construction.Capturing the desired benefitsThe effectiveness of size as a factor is often debated.Studies have often emphasised that small caps exhibit characteristics closely ti

180、ed to beta exposure,with limited standalone strength as a factor.The research broadly finds that small-cap stocks often fail to outperform without the influence of other factors,such as value or momentum.The findings point to small caps catalysing other factors,highlighting the importance of integra

181、ting small-cap investing into broader,multifactor strategies rather than relying on them in isolation.“Understanding the nuances can help deliver benefits within portfolios.”Source:HSBC Asset Management,Bloomberg,November 2024.Any views expressed were held at the time of preparation and are subject

182、to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.This information shouldnt be considered as an investment advice.Past

183、performance does not predict future returns.Figure 1:S&P 500 stock return distribution(%)0%10%20%30%40%50%200 andhigher180 to200160 to180140 to160120 to140100 to12080 to10060 to 8040 to 6020 to 400 to 20-20 to 0-40 to-20-60 to-40-80 to-60-80 andlower20242023202220212020201920182017201620152014201320

184、12201120100%10%20%30%200 andhigher180 to200160 to180140 to160120 to140100 to12080 to10060 to 8040 to 6020 to 400 to 20-20 to 0-40 to-20-60 to-40-80 to-60-80 andlower202420232022202120202019201820172016201520142013201220112010Figure 2:Russell 2000 stock return distribution(%)PUBLICForewordMacroFixed

185、income deep diveEquity deep diveMulti-asset deep diveTop of mind0123456-20-100102030Russell 2000S&P 500Any views expressed were held at the time of preparation and are subject to change without notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any

186、 way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.This information shouldnt be considered as an investment advice.Past performance does not predict future returns.232025 Global Investment Outlook23Regional trendsA review of differences in the

187、regional performance of small caps vs large caps over the last two decades demonstrates that a one-size-fits-all approach is not appropriate,with local factors clearly at play.For instance,the stark contrast between China and India reflect differences in local economic momentum.And,contrary to the c

188、ommon assumption of small caps being high-beta plays,US small caps have shown muted beta levels.This has translated into US small caps massively underperforming in recent years the Russell 2000s cumulative return of roughly 50%from 2009 to 2021 pales in comparison to the S&P 500s 300%return.Unlike t

189、he US,European small caps have exhibited a classic high-beta characteristic,with performance closely tied to macroeconomic cycles and activity.This cyclicality can also be linked to their higher operating leverage and sector distribution,resulting in more volatility but also opportunities during eco

190、nomic recoveries.Challenges and strategic considerationsThe number of initial public offerings(PO)peaked in the 1990s,while the value of IPOs is now materially higher.This trend points to fewer smaller companies entering the public markets,limiting the opportunities available to small-cap investors.

191、Contributing to this has been the absorption of smaller companies by private equity firms.Yet,periods of economic stress expose vulnerability to external shocks.The onset of the Covid-19 pandemic was one,which revealed weaknesses across the board for small caps that has continued to date.Indian smal

192、l caps have been an exception,benefitting from world-leading economic growth and domestic fund inflows.Over the past three years,the Nifty SmallCap 100 Index has outperformed the Nifty 50 Index by approximately 20%.In Europe,small caps historically outperformed large caps until the onset of the pand

193、emic,and now trade below their long-term average P/E,having given up their prior valuation premium versus large caps.This may signal a compelling entry point,particularly if uncertainties around inflation,interest rates and trade policies diminish uncertainties to which European small caps have been

194、 particularly sensitive to historically,given their cyclicality.In the US,divergence between large-cap and small-cap valuations has reached historical extremes.The current price-to-book ratio for large caps stands at around 5,compared to approximately 2 for small caps.This gap a ratio of 2.5 is abou

195、t the highest it has ever been.Return on equity(ROE)is an important contributing factor,with a 15%spread in ROE having opened up in favour of large caps in recent years.As it should in functioning financial markets,ROE trends help tell the story of what has played out.Similarly,when we examine the c

196、ontrast of China and India small cap performance over the last 15 years,ROEs moving in opposite directions in each market coincide with the performance dispersion.50100150200250Oct 00Mar 06Sep 11Mar 17Aug 22US Rel S-LStoxx Rel S-LJapan Rel S-LChina Rel S-LIndia Rel S-LFigure 3:Small vs large cap ret

197、urns per regionSource:HSBC Asset Management,Bloomberg,November 2024.Figure 4:Price-to-book vs return on equity%Source:HSBC Asset Management,Bloomberg,November 2024.020040060080001,0002,0003,0004,0002005 2007 2009 2011 2013 2015 2017 2019 2021 2023Assets Under Management($bn)Inflows($bn)Figure 5:Priv

198、ate equity AUM and inflowsSource:HSBC Asset Management,Bloomberg,November 2024.PUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mind2025 Global Investment Outlook24Implications are evident in the US.The earnings and cash flows of US small caps has deteriorated ove

199、r the last few decades,while the opposite has occurred for the S&P 500.Of course,profitable small firms are better candidates for removal from the market by private equity.We now see a concentration of wealth within a small number of large companies the largest 320 stocks in the Russell 2000 account

200、 for 50%of the indexs market capitalisation.Again,this situation is not replicated across markets.Less concentration in Europe means small-cap investors there benefit from a significantly reduced concentration risk compared to large cap indices.These differences and nuances are key to why small caps

201、 can be useful for playing tactical themes within a portfolio-not necessarily from a global perspective,but on region-by-region basis.Small caps today can certainly present compelling opportunities due to significant valuation resets.While higher-for-longer rates contributing to higher ongoing finan

202、cing costs are a clear concern for small caps which have much more variable-rate debt there is not a massive refinancing wall ahead for 2025 to pose additional obstacles.Potential catalysts for a reboundStructural challenges must be considered for small caps,but several potential catalysts could dri

203、ve a rebound.One is the aftermath of the US elections.Both previous turnarounds in small-cap performance occurred during periods of heightened volatility in the late 1990s and the initial pandemic recovery.The recent spike in three-month rolling volatility,which surpassed 20%in August and September,

204、may indicate that we could be on the cusp of another significant shift.The recent outperformance by the index similarly follows a historical trend that has seen the Russel 2000 outperform the S&P 500 by nearly 4%historically during election weeks placing it in the 98thpercentile of weekly performanc

205、e since 1990.Favourable policy changes under the new US administration could support a longer-lasting reversal for the US small caps.0.40.50.60.70.80.91.01.11.20%5%10%15%20%25%30%35%40%199019921994199619982000200220042006200820102012201420162018202020222024Rolling 3m vol(lhs)Cumulative Excess Return

206、s(rhs)Other catalysts could include a reduction in global economic uncertainty and favourable shifts in trade dynamics that benefit smaller companies.Improved policy coordination in markets like China can restore investor confidence in downtrodden small caps there.Portfolio implications and outlookS

207、mall-cap stocks offer distinct diversification benefits,with lower concentration risks compared to large-caps.This characteristic is particularly evident in Europe,where small caps provide a broader sector spread.However,this advantage comes with trade-offs we have outlined.Importantly,the path for

208、small caps appears to remain regionally divergent.While there are potential entry points for European and Chinese small-cap equities that could get support from a rebound in growth and removal of uncertainty,US and Indian small caps face profitability challenges and stretched valuations,respectively

209、.Overall,small-cap investing is not a one-size-fits-all.The new US government,sector compositions,and the debt landscape will necessitate a tactical approach for blending small caps in well-diversified portfolios.Any views expressed were held at the time of preparation and are subject to change with

210、out notice.While any forecast,projection or target where provided is indicative only and not guaranteed in any way.HSBC Asset Management accepts no liability for any failure to meet such forecast,projection or target.This information shouldnt be considered as an investment advice.Past performance do

211、es not predict future returns.Source:HSBC Asset Management,Bloomberg,November 2024.Figure 7:Russell 2000 vs S&P 500 volatility and excess returnsSource:HSBC Asset Management,Bloomberg,November 2024.Find out moreIn our latest Multi-Asset Insights0%10%20%30%2024202520262027202820292030RTY IndexSPX Ind

212、exFigure 6:Russell 2000 vs S&P 500 refinancing riskPUBLICForewordMacroFixed income deep diveEquity deep diveMulti-asset deep diveTop of mindImportant information25PUBLICForewordMacroTop of mindFixed income deep diveEquity deep diveMulti-asset deep diveImportant information2025 Global Investment Outl

213、ookFor Professional Clients and intermediaries within countries and territories set out below;and for Institutional Investors and Financial Advisors in the US.This document should not be distributed to or relied upon by Retail clients/investors.The value of investments and the income from them can g

214、o down as well as up and investors may not get back the amount originally invested.The performance figures contained in this document relate to past performance,which should not be seen as an indication of future returns.Future returns will depend,inter alia,on market conditions,investment managers

215、skill,risk level and fees.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.E

216、conomies 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

217、countries and territories with which they trade.These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade.The contents of this document may not be reproduced or further distributed to any person or entity,whet

218、her in whole or in part,for any purpose.All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings.The material contained in this document is for general information purposes only and does not constitute advice or a recommendation

219、 to buy or sell investments.Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events.Such forward looking statements are not guarantees of future performance or events and involve risks and uncerta

220、inties.Actual results may differ materially from those described in such forward-looking statements as a result of various factors.We do not undertake any obligation to update the forward-looking statements contained herein,or to update the reasons why actual results could differ from those projecte

221、d in the forward-looking statements.This document has no 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

222、 those of HSBC Asset Management 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 Asset Management primarily reflect individual clients objectives,risk preferences,time horizo

223、n,and market liquidity.Foreign and emerging markets.Investments in foreign markets involve risks such as currency rate fluctuations,potential differences in accounting and taxation policies,as well as possible political,economic,and market risks.These risks are heightened for investments in emerging

224、 markets which are also subject to greater illiquidity and volatility than developed foreign markets.This commentary is for information purposes only.It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments

225、 nor should it be regarded as investment research.It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.This document is not contractually binding nor are

226、we required to provide this to you by any legislative provision.All data from HSBC Asset Management unless otherwise specified.Any third party information has been obtained from sources we believe to be reliable,but which we have not independently verified.HSBC Asset Management is the brand name for

227、 the asset management business of HSBC Group,which includes the investment activities that may be provided through our local regulated entities.HSBC Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund manage

228、ment activities,which are ultimately owned by HSBC Holdings Plc.(HSBC Group).The above communication is distributed by the following entities:In Argentina by HSBC Global Asset Management Argentina S.A.,Sociedad Gerente de Fondos Comunes de Inversin,Agente de administracin de productos de inversin co

229、lectiva de FCI N1;In Australia,this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162,AFSL 232595,for HSBC Global Asset Management(Hong Kong)Limited ARBN 132 834 149 and HSBC Global Asset Management(UK)Limited ARBN 633 929 718.This document is for institutional investors only,and

230、is not available for distribution to retail clients(as defined under the Corporations Act).HSBC Global Asset Management(Hong Kong)Limited and HSBC Global Asset Management(UK)Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect

231、 of the financial services they provide.HSBC Global Asset Management(Hong Kong)Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws,which differ from Australian laws.HSBC Global Asset Management(UK)Limited is regulated by the Financial Conduct Authority

232、 of the United Kingdom and,for the avoidance of doubt,includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013,under the laws of the United Kingdom,which differ from Australian laws;in Bermuda by HSBC Global Asset Management(Bermuda)Limited,of 37

233、 Front Street,Hamilton,Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;in Chile:Operations by HSBCs headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilea

234、n state.Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;26PUBLICForewordMacroTop of mindFixed income deep diveEquity deep diveMulti-asset deep dive2025 Global Investment Outlookin Colombia:HSBC Bank USA NA has an authorized representative by t

235、he Superintendencia Financiera de Colombia(SFC)whereby its activities conform to the General Legal Financial System.SFC has not reviewed the information provided to the investor.This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;in Finlan

236、d,Norway,Denmark and Sweden by HSBC Global Asset Management(France),a Portfolio Management Company authorised by the French regulatory authority AMF(no.GP99026)and through the Stockholm branch of HSBC Global Asset Management(France),regulated by the Swedish Financial Supervisory Authority(Finansinsp

237、ektionen);in France,Belgium,Netherlands,Luxembourg,Portugal,Greece by HSBC Global Asset Management(France),a Portfolio Management Company authorised by the French regulatory authority AMF(no.GP99026);in Germany by HSBC Global Asset Management(Deutschland)GmbH which is regulated by BaFin(German clien

238、ts)respective by the Austrian Financial Market Supervision FMA(Austrian clients);in Hong Kong by HSBC Global Asset Management(Hong Kong)Limited,which is regulated by the Securities and Futures Commission.This video/content has not be reviewed by the Securities and Futures Commission;in India by HSBC

239、 Asset Management(India)Pvt Ltd.which is regulated by the Securities and Exchange Board of India;in Italy and Spain by HSBC Global Asset Management(France),a Portfolio Management Company authorised by the French regulatory authority AMF(no.GP99026)and through the Italian and Spanish branches of HSBC

240、 Global Asset Management(France),regulated respectively by Banca dItalia and Commissione Nazionale per le Societ e la Borsa(Consob)in Italy,and the Comisin Nacional del Mercado de Valores(CNMV)in Spain;in Malta by HSBC Global Asset Management(Malta)Limited which is regulated and licensed to conduct

241、Investment Services by the Malta Financial Services Authority under the Investment Services Act;in Mexico by HSBC Global Asset Management(Mexico),SA de CV,Sociedad Operadora de Fondos de Inversin,Grupo Financiero HSBC which is regulated by Comisin Nacional Bancaria y de Valores;in the United Arab Em

242、irates,Qatar,Bahrain&Kuwait by HSBC Global Asset Management MENA,a unit within HSBC Bank Middle East Limited,U.A.E Branch,PO Box 66 Dubai,UAE,regulated by the Central Bank of the U.A.E.and the Securities and Commodities Authority in the UAE under SCA license number 602004 for the purpose of this pro

243、motion and lead regulated by the Dubai Financial Services Authority.HSBC Bank Middle East Limited is a member of the HSBC Group and HSBC Global Asset Management MENA are marketing the relevant product only in a sub-distributing capacity on a principal-to-principal basis.HSBC Global Asset Management

244、MENA may not be licensed under the laws of the recipients country of residence and therefore may not be subject to supervision of the local regulator in the recipients country of residence.One of more of the products and services of the manufacturer may not have been approved by or registered with t

245、he local regulator and the assets may be booked outside of the recipients country of residence.in Peru:HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Segurosin Per whereby its activities conform to the General Legal Financial System-Law No.26702.Funds have not b

246、een registered before the Superintendencia del Mercado de Valores(SMV)and are being placed by means of a private offer.SMV has not reviewed the information provided to the investor.This document is for the exclusive use of institutional investors in Per and is not for public distribution;in Singapor

247、e by HSBC Global Asset Management(Singapore)Limited,which is regulated by the Monetary Authority of Singapore.The content in the document/video has not been reviewed by the Monetary Authority of Singapore;in Switzerland by HSBC Global Asset Management(Switzerland)AG.This document is intended for pro

248、fessional investor use only.For opting in and opting out according to FinSA,please refer to our website;if you wish to change your client categorization,please inform us.HSBC Global Asset Management(Switzerland)AG having its registered office at Gartenstrasse 26,PO Box,CH-8002 Zurich has a licence a

249、s an asset manager of collective investment schemes and as a representative of foreign collective investment schemes.Disputes regarding legal claims between the Client and HSBC Global Asset Management(Switzerland)AG can be settled by an ombudsman in mediation proceedings.HSBC Global Asset Management

250、(Switzerland)AG is affiliated to the ombudsman FINOS having its registered address at Talstrasse 20,8001 Zurich.There are general risks associated with financial instruments,please refer to the Swiss Banking Association(“SBA”)Brochure“Risks Involved in Trading in Financial Instruments”;in Taiwan by

251、HSBC Global Asset Management(Taiwan)Limited which is regulated by the Financial Supervisory Commission R.O.C.(Taiwan);in the UK by HSBC Global Asset Management(UK)Limited,which is authorised and regulated by the Financial Conduct Authority;and in the US by HSBC Global Asset Management(USA)Inc.which

252、is an investment adviser registered with the US Securities and Exchange Commission.In Uruguay,operations by HSBCs headquarters or other offices of this bank located abroad are not subject to Uruguayan inspections or regulations and are not covered by warranty of the Uruguayan state.Further informati

253、on may be obtained about the state guarantee to deposits at your bank or on www.bcu.gub.uy.NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUECopyright HSBC Global Asset Management Limited 2024.All rights reserved.No part of this publication may be reproduced,stored in a retrieval system,or transmitted,on any form or by any means,electronic,mechanical,photocopying,recording,or otherwise,without the prior written permission of HSBC Global Asset Management Limited.Content ID:D037298_V1.0 Expiry date:30.11.2025.27