Global economies and fiscal policies are "out of sync", according to a recently published HSBC Asset Management report.
HSBC Asset Management's '2023 Mid-Year Outlook' report warns that a US recession is predicted to begin in Q4, followed by a contraction in 2024. Europe is expected to experience a recession in 2024 as well.
Despite these warnings, credit and stock markets continue to trade well, creating a disconnect between economic indicators and market performance.
The report suggests intelligent diversification into emerging markets (EM), which offer a better macroeconomic scenario than developed markets (DM).
The anticipated recession is expected to resemble the early 1990s recession, with a 1-2% GDP drawdown. The market outlook is described as challenging and choppy due to tightening financial conditions and optimistic pricing of a "soft landing."
The global asset manager said it advises caution, particularly in risk and cyclicality, favouring interest rate exposure, European bonds and higher quality investment-grade credits.
HSBC Asset Management identified emerging markets as an attractive asset allocation, offering lower country correlations and fewer financial stability concerns.
China and India are highlighted as growth opportunities, with China's domestic demand supported by high savings and India's strong recovery from Covid-19. Real assets are also positioned as defensive growth investments, with Asian Pacific markets and infrastructure assets presenting selective opportunities.
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