HSBC urges investors to stay aggressively risk-on

Investing.com -- HSBC is calling for investors to remain firmly positioned for further gains across global risk assets, arguing that market dynamics continue to favour an aggressive pro-risk stance.

The bank said it is “almost maximum OW in equities, and OW in HY credit, EMD and gold,” while staying underweight in developed-market sovereigns, investment-grade credit and oil.

In its latest strategy note, HSBC stated that geopolitics remains a secondary concern, stressing that “to us it’s about U.S. rates and rates volatility and near-term growth expectations.”

The bank argued that fourth-quarter S&P 500 earnings expectations are “still way too low,” and ahead of a pivotal earnings week, it recommends rotating “from the rates-sensitive high-beta sectors back to mega caps.”

HSBC also downplayed risks of a renewed spike in interest-rate volatility, saying it does not expect the so-called “Danger Zone of higher U.S. rate expectations” to be triggered yet.

It believes U.S. labour data will “stay ‘mixed enough’, which in turn should send volatility in FX and rates even lower.”

This backdrop, the bank said, supports its overweight calls in high-yield credit and emerging-market debt, with a “preference for high-beta EM names.”

They added that technical indicators, including sentiment, positioning, momentum and cyclical gauges, “all support a continued risk-on and cyclical stance across asset classes.”

Within equities, HSBC remains overweight the U.S., particularly mega-cap tech, as well as Japan, eurozone banks and emerging markets.

It also upgraded U.K. gilts to overweight, saying fiscal concerns should “temporarily make way for cyclical concerns.”

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