HSBC Global Private Banking and Wealth

HSBC HK
Insight
Investment Outlook
Think Future 2025

Willem Sels

Global Chief Investment Officer, HSBC Global Private Banking and Wealth

A clearer outlook and solid growth drivers paint a bright picture for equities

As an eventful 2024 comes to an end, we now stand on the brink of a promising new chapter, with additional clarity supporting an optimistic outlook for equities and a renewed focus on fundamentals. Most notably, it’s clear that the rate-cut path adopted by most developed market central banks and the power of innovation will remain key factors of support for global equities in 2025. The positive sign that the US is on a solid growth trajectory, albeit at a slower pace, also alleviates recession fears, while growth momentum should broaden as we get more clarity on the new US administration’s policy priorities.

What does this mean for investors?

As interest rates are edging down, companies and investors with abundant cash reserves shouldn’t rest on their laurels and let their real returns diminish. With most central banks on course to cut rates, the positive impact of lower borrowing costs should play out more visibly in 2025, leading to a rebound in M&A activity, increased dividends and share buybacks, as well as more corporate investment in innovation – all of which will continue to drive equity performance.

We remain most bullish on US equities, as earnings should continue to deliver upside surprises against a resilient economic backdrop. Why? We think economists tend to underestimate US economic growth, which is expected to remain close to 2% in 2025, and overestimate the importance of economic indicators, such as yield curve inversion. Meanwhile, improving fundamentals in the UK and diverse opportunities in Asia, led by India, Singapore and Japan, also underpin return potential for equities in those markets and help to widen the opportunity set.

Structural trends and policy priorities uncover sector opportunities

In addition to geographical exposure, we also look to structural trends and policy priorities to identify potential sector winners, and it’s no surprise that the technology sector remains our top pick to deliver robust earnings growth. But innovation also benefits other sectors, such as healthcare and industrials, thanks to the wide application of artificial intelligence, while typically high-dividend utilities stocks should gain from declining interest rates. The US under the Trump administration is likely to prioritise tax cuts and deregulation, supporting the financials and energy sectors. However, higher trade tariffs will be a potential threat to markets having a big trade surplus with the US, so China and the Eurozone may be most exposed to this headwind. Having said that, we believe this may trigger further policy stimulus from China to mitigate downside risks and revive domestic demand.

While we’re optimistic about a positive investment journey for equities in 2025, it’s important to remain vigilant, as we’re still faced with complex geopolitical risks and the build-up of government debt – and there’s always the chance of further surprises. Diversification remains a golden rule in investing at all times.

Leverage multi-asset strategies and new avenues to achieve diversification

While yields have come down, we believe quality bonds still play a critical role as a good source of income and diversification. The mix of equities and bonds in the hands of professionals adds to the appeal of multi-asset strategies, which can adjust asset class allocation, and even bond durations in response to evolving market situations.

Finally, investors can achieve greater diversification by adding exposure to investments with lower correlations to equities and bonds. Sustainable energy and infrastructure stand out as interesting avenues for investors looking to optimise portfolio returns. As we navigate this fast-changing financial landscape, the enduring appeal of gold as a safe-haven asset also warrants attention.

Our 2024 HSBC Quality of Life Report underlined the connection between effective financial planning and our overall quality of life, and we’ve invited a panel of in-house experts to explore this topic from different perspectives.

We hope these insights will help you plan for the new year and your future. Best wishes for a successful investment journey in 2025.

Download the full publication

Investment themes

The resilience of the US economy, underpinned by better-than-expected economic data, falling inflation, robust earnings growth and rate cuts, should continue to provide fertile ground for US equities to flourish in 2025. Moreover, US equities tend to perform well in the first six months after an election. Having said that, we see opportunities elsewhere too that shouldn’t be missed.

We are increasingly positive in Asia. India’s domestic-driven structural growth story remains attractive, and Japan is riding a reflationary tailwind. Meanwhile, ASEAN markets can benefit from supply chain diversification, with Singapore standing out for its attractive dividend yield and large REIT exposure. Corporate governance reforms in Japan, South Korea and China are set to boost dividend payouts and share buybacks. And the US Federal Reserve’s easing cycle provides room for Asian central banks to follow suit, adding to the investment case for Asian equities.

Compared to the Eurozone, which faces the challenges of sluggish economic growth and potential US tariffs, the UK looks more compelling, supported by more favourable macro conditions, falling interest rates, improved real incomes, relative political stability and cheap valuations. The UK budget included measures to boost infrastructure investment and the energy transition.

We remain bullish on global equities, with US equities having our biggest equity allocation, and prefer the UK over the Eurozone.
We like the diverse growth drivers in Asia, favouring India, Singapore and Japan. We remain neutral in mainland China and Hong Kong but see positive signs with more government support.

Earnings momentum is broadening across sectors as input costs ease and rate cuts lower borrowing costs, while innovation is driving new sources of revenue and lifting productivity. In the US, the structural trends of the technology revolution, innovation in healthcare, re-onshoring and US industrialisation remain firmly in place, supporting our earnings growth forecast of 15% for 2025 (vs 9% for 2024).

Several sector themes are playing loudly in most, if not all, regions. While technology continues to be a key driver for growth, the outperformance of the communications and healthcare sectors in the US and elsewhere is likely to continue. Utilities will also gain traction as investors look to high-dividend stocks as interest rates fall.

Policy priorities can help shed light on the sectors that will excel. The Republican clean sweep in the US elections will likely lead to tax cuts, which should stimulate corporate activity and household spending. The financials sector should also benefit from potential deregulation, while the renewed focus on industrials will help create jobs and strengthen national security.

While technology remains in favour, we broaden our sector view to include communications, financials, industrials and healthcare in the US.
We’re relatively more defensive in Europe, favouring technology, energy and healthcare. In Asia, we see opportunities in technology, communications, industrials, consumer staples and utilities.

Although we’re more optimistic about equities, they shouldn’t be the only play in your portfolio. The record year of elections is coming to an end, but market volatility isn’t going away. And with interest rates coming down, there’s a need to shift from cash to something more productive.

A well-diversified portfolio is always a good strategy for balancing opportunities and risks. Investors who prefer the allocation of equities and bonds to be managed professionally may consider multi-asset strategies, which provide geographical and asset class diversification and allow the fund manager to capture growth opportunities while managing downside and duration risks.

Bonds remain a good option from an income and diversification perspective. They’re essential for people looking for a regular income stream to strengthen portfolio stability, and for those who are retired or near retirement, when income generation plays a more important role than capital growth. Although credit spreads have tightened, we expect the pace of Fed rate cuts to be gradual, meaning that we can still seize the opportunity to lock in current yields.

Multi-asset strategies provide geographical and asset class diversification, capturing growth opportunities while managing downside risks.
We prefer quality bonds with medium maturities (5-7 years), where yields remain relatively more attractive

To look for a higher level of diversification and new sources of returns, investors can consider other investment options with relatively lower correlations to the conventional equity/bond mix.

Decarbonisation, digitalisation, re-onshoring and urbanisation create a huge need for infrastructure investments by both private capital and governments. We see interesting opportunities in physical infrastructure, such as roads and transportation, as well as renewable energy, utilities and the development of “smart cities”, where infrastructure spending on data centres and energy consumption will be significant.

Sustainability continues to gain momentum around the globe and across sectors, with industries expanding and developing new products to meet growing demand for sustainable alternatives. To meet the net-zero goals by 2050, an average of USD4.8 trillion annually in renewable energy is needed through 2030 globally[@think-future-01]. Growth in renewable energy capacity surged by 50% in 2023[@think-future-02], indicating a substantial shift towards lower carbon production and independence in energy sourcing.

As gold is traditionally seen as a safe-haven, there could also be continued demand for gold as a hedge against unexpected market uncertainties.

We see structural investment opportunities in sustainable energy, such as renewables, hydrogen, energy storage and carbon capture.
Infrastructure offers relatively stable cash flows and dividends, while gold can be a diversifier to withstand market uncertainties.

Regional market outlook

The US elections were the focus in recent months and we believe the new government’s policies will boost after-tax profits and households’ after-tax income. The clarity should also cause companies to invest more, boost share buybacks and raise M&A activity. All of these are positives for US stocks, which already benefit from resilient earnings growth and interest rate cuts. As a result, the US stock market remains our main overweight, with technology, communications, financials, industrials and healthcare being our preferred sectors. Bonds should be supported by Fed cuts, but questions around the rising government deficit and the impact of tariffs on inflation could lead to some volatility. So, while we continue to lock in current attractive yields across the US bond market, we do this to generate a strong income stream as we don’t expect rapid bond price gains.

Europe’s economic growth is seeing some challenges and there’s significant dispersion across the continent. Germany’s manufacturing and export-led economy continues to face obstacles, while the UK is relatively better positioned. Continued rate cuts by the ECB and the Bank of England should help support bonds and stocks, while a stimulus-driven pickup in Chinese demand could help Europe’s exporters. How the two wars on Europe’s borders evolve will remain an important factor, too. Given the challenges posed by US tariffs and slow growth, we underweight the Eurozone, but maintain our overweight in the UK, where the fundamentals are more supportive.

Central and Eastern Europe continue to face substantial headline risks related to geopolitics, as well as challenging fundamentals due to relatively weak growth in the EU and Russia. For the Middle East, the combination of military conflict and relatively low oil prices is a challenging mix.

Mexican assets and the peso could see some increased volatility as the new US administration reviews the use of tariffs and revisits the US-Mexico-Canada Agreement. In Brazil, we expect that renewed rate hikes may weigh on performance.

As a result, we maintain our underweight allocations to both regions, seeing better opportunities elsewhere.

Asia will be in the spotlight in 2025, with the potential for solid performance. Most Asian equity markets are trading at cheap valuation multiples compared to Western markets, and rate cuts by central banks around the world may help unlock that value. China’s stimulus measures reduce the downside risk for the economy and can trigger significant upside if they manage to boost domestic demand and corporate earnings. The stimulus can help to offset the impact of increased US tariffs, especially for companies catering to local demand. In India, there’s strong cyclical and structural support thanks to technology and manufacturing innovation, consumption growth and government stimulus. As a result, we’re overweight on Indian and Singaporean stocks. In fixed income, we focus on quality bonds in the region and favour Indian local currency and Indonesian bonds.

Japan’s economic growth and inflation pickup should remain positive in 2025. But inflation is already easing somewhat and this should allow the Bank of Japan to take a gradual approach to its interest rate hikes. We think this environment will provide the stability that companies crave and increase their earnings power, helping support the stock market. Companies also continue to focus on shareholder value creation by raising dividends and share buybacks, which is a further positive. Hence, we maintain our overweight on Japanese stocks. Bonds, however, are less attractive due to lower yields compared to other global markets.

Key data to watch

Source: HSBC Global Research as at 15 November 2024. Estimates and forecasts are subject to change. India inflation forecasts are fiscal year.

Source: Bloomberg, HSBC Global Private Banking and Wealth as at 15 November2024. Past performance is not a reliable indicator of future performance.

Source: Diversified portfolio = performance of our moderate-risk strategic asset allocation, in USD terms. Bloomberg, HSBC Global Private Banking and Wealth as at 15 November 2024. Past performance is not a reliable indicator of future performance.

Read the full report

Sign up for our newsletter

Never miss market updates. Receive a summary of our latest insights directly in your inbox each week

Log-on to buy/sell Unit Trusts

Start investing in funds with an initial investment as low as HKD1,000

Log-on

US Election Results - Potential Policy and Investment Implications

In this video, we analyse the market implications of the US election. Donald Trump is set...[18 Nov]

Special Coverage: China NPC announces debt swap plan but leaves further fiscal stimulus for 2025

The China National People’s Congress (NPC) Standing Committee meeting on 8 November...[11 Nov]

[Update] Investment Monthly: US equities remain attractive as election risk eases

While solid economic and earnings growth data, Fed rate cuts and structural trends are...[7 Nov]

Notes

The above comments reflects a 6-month view (relatively short-term) on asset classes for a tactical asset allocation. For a full listing of HSBC’s house view on asset classes and sectors, please refer to our Investment Monthly issued at the beginning of each month.

Sources:

This document or video is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document or video is distributed and/or made available, HSBC Bank (China) Company Limited, HSBC Bank (Singapore) Limited, HSBC Bank Middle East Limited (UAE), HSBC UK Bank Plc, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (20080100642 1 (807705-X)), HSBC Bank (Taiwan) Limited, HSBC Bank plc, Jersey Branch, HSBC Bank plc, Guernsey Branch, HSBC Bank plc in the Isle of Man, HSBC Continental Europe, Greece, The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank (Vietnam) Limited, PT Bank HSBC Indonesia (HBID), HSBC Bank (Uruguay) S.A. (HSBC Uruguay is authorised and oversought by Banco Central del Uruguay), HBAP Sri Lanka Branch, The Hongkong and Shanghai Banking Corporation Limited – Philippine Branch, HSBC Investment and Insurance Brokerage, Philippines Inc, and HSBC FinTech Services (Shanghai) Company Limited and HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group (collectively, the “Distributors”) to their respective clients. This document or video is for general circulation and information purposes only.

The contents of this document or video may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document or video must not be distributed in any jurisdiction where its distribution is unlawful. All non-authorised reproduction or use of this document or video will be the responsibility of the user and may lead to legal proceedings. The material contained in this document or video is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document or video 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 uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HBAP and the Distributors 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 projected in the forward-looking statements. This document or video 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 are based on the HSBC Global Investment Committee at the time of preparation and are subject to change at any time. These views may not necessarily indicate HSBC Asset Management‘s current portfolios’ composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients’ objectives, risk preferences, time horizon, and market liquidity.

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document or video is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. 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. Economies 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 countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investments are subject to market risks, read all investment related documents carefully.

This document or video provides a high-level overview of the recent economic environment and has been prepared for information purposes only. The views presented are those of HBAP and are based on HBAP’s global views and may not necessarily align with the Distributors’ local views. 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. It is not intended to provide and should not be relied on for accounting, legal or tax advice. Before you make any investment decision, you may wish to consult an independent financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. You are advised to obtain appropriate professional advice where necessary.

The accuracy and/or completeness of any third-party information obtained from sources which we believe to be reliable might have not been independently verified, hence Customer must seek from several sources prior to making investment decision.

The following statement is only applicable to HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group with regard to how the publication is distributed to its customers: This publication is distributed by Wealth Insights of HSBC México, and its objective is for informational purposes only and should not be interpreted as an offer or invitation to buy or sell any security related to financial instruments, investments or other financial product. This communication is not intended to contain an exhaustive description of the considerations that may be important in making a decision to make any change and/or modification to any product, and what is contained or reflected in this report does not constitute, and is not intended to constitute, nor should it be construed as advice, investment advice or a recommendation, offer or solicitation to buy or sell any service, product, security, merchandise, currency or any other asset.

Receiving parties should not consider this document as a substitute for their own judgment. The past performance of the securities or financial instruments mentioned herein is not necessarily indicative of future results. All information, as well as prices indicated, are subject to change without prior notice; Wealth Insights of HSBC Mexico is not obliged to update or keep it current or to give any notification in the event that the information presented here undergoes any update or change. The securities and investment products described herein may not be suitable for sale in all jurisdictions or may not be suitable for some categories of investors.

The information contained in this communication is derived from a variety of sources deemed reliable; however, its accuracy or completeness cannot be guaranteed. HSBC México will not be responsible for any loss or damage of any kind that may arise from transmission errors, inaccuracies, omissions, changes in market factors or conditions, or any other circumstance beyond the control of HSBC. Different HSBC legal entities may carry out distribution of Wealth Insights internationally in accordance with local regulatory requirements.

Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”)

HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India is a distributor of mutual funds and referrer of investment products from third party entities registered and regulated in India. HSBC India does not distribute investment products to those persons who are either the citizens or residents of United States of America (USA), Canada or New Zealand or any other jurisdiction where such distribution would be contrary to law or regulation.

The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guarantee on the management or operation performance of the trust business.

The following statement is only applicable to PT Bank HSBC Indonesia (“HBID”): PT Bank HSBC Indonesia (“HBID”) is licensed and supervised by Indonesia Financial Services Authority (“OJK”). Customer must understand that historical performance does not guarantee future performance. Investment product that are offered in HBID is third party products, HBID is a selling agent for third party product such as Mutual Fund and Bonds. HBID and HSBC Group (HSBC Holdings Plc and its subsidiaries and associates company or any of its branches) does not guarantee the underlying investment, principal or return on customer investment. Investment in Mutual Funds and Bonds is not covered by the deposit insurance program of the Indonesian Deposit Insurance Corporation (LPS).

Important information on ESG and sustainable investing

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.

In broad terms “ESG and sustainable investing” products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes. There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don’t consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks. In addition, there is no standard definition of, or measurement criteria for, ESG and Sustainable investing or the impact of ESG and Sustainable investing products. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC may rely on measurement criteria devised and reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved. ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how investments can be categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.

THE CONTENTS OF THIS DOCUMENT OR VIDEO HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG OR ANY OTHER JURISDICTION. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT OR VIDEO. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT OR VIDEO, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.

No part of this document or video 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 The Hongkong and Shanghai Banking Corporation Limited.

Think Future 2025: Your guide to the global investment landscape

A clearer outlook and solid growth drivers paint a bright picture for equities

Investment themes

1. Expand geographically to unlock growth opportunities

2. Uncover sector winners of structural trends and policy priorities

3. Strengthen portfolio stability with multi-asset strategies

4. Explore new avenues to achieve greater diversification

Regional market outlook

United States

The Eurozone and UK

EM EMEA and EM Latin America

Asia (ex-Japan)

Japan

Key data to watch

Resilient US economic growth has alleviated recession fears. Lower inflation expectations allow most central banks to continue cutting rates

The US has continued to outperform global equities, but the UK and Asia are showing improvement

Diversified portfolio strategies have outperformed cash in 2024 and we think this will continue in 2025

Sign up for our newsletter

Log-on to buy/sell Unit Trusts

Related Insights

US Election Results - Potential Policy and Investment Implications

Special Coverage: China NPC announces debt swap plan but leaves further fiscal stimulus for 2025

[Update] Investment Monthly: US equities remain attractive as election risk eases

Disclaimer