HSBC: Expects the Fed to cut interest rates three times by 25 basis points this year, maintaining an overweight position in global stocks and high-quality bonds

According to the information from the Smart Finance and Economics APP, HSBC Global Private Banking has released the investment outlook for the fourth quarter of 2024. The bank expects a soft landing for the U.S. economy, believing that the market has overreacted to concerns about the risk of a U.S. economic recession. It is anticipated that the Federal Reserve will start a rate-cutting cycle in September, global stock markets will benefit from expanding corporate earnings, central banks around the world will cut interest rates, and technological innovation will drive productivity upgrades. Therefore, the bank maintains a high allocation to global stocks and high-quality bonds.

The bank holds a high allocation to stocks in the United States, United Kingdom, Japan, India, and South Korea. To deal with market volatility before the U.S. election in November, HSBC Global Private Banking has a high allocation to hedge funds to manage portfolio volatility through a diversified asset strategy.

Vanessa Fan, Chief Investment Officer for HSBC Global Private Banking and Wealth Management in Asia, stated that despite the gradual slowdown in U.S. economic growth, there is no immediate risk of a recession in the United States. Benefiting from reduced cost pressures, lower financing costs, and technological disruptions driving productivity growth, many companies continue to see steady and robust profit growth, providing numerous investment opportunities in the market. It is expected that the Federal Reserve will cut interest rates three times in September, November, and December this year, each time by 25 basis points, and will cut rates three more times in 2025, each time by 25 basis points. Central bank rate cuts will have a positive impact on the valuation of bonds, stocks, and assets. Central bank rate cuts will reduce the attractiveness of holding cash, continue zero cash allocations, and actively pursue diversified investments.

Vanessa Fan pointed out that as we enter the fourth quarter, global market volatility may increase. The focus will be on investing in high-quality stocks and high-rated corporate bonds, with a high allocation to hedge funds and strategically positioning in private market investments to achieve portfolio diversification in response to rapidly changing global situations.

Vanessa Fan said that due to attractive yield levels and credit spreads, a high allocation will be maintained to global investment-grade corporate bonds and high-quality emerging market and major Asian currency bonds. Bonds play a crucial role in providing stable returns and diversifying portfolio risks. Currently, the correlation between stocks and bonds has significantly decreased, returning to negative territory, indicating that a diversified asset allocation of stocks and bonds once again becomes a powerful diversification tool.

Regarding the foreign exchange market, as the Federal Reserve initiates a rate-cutting cycle, the interest rate differential between the U.S. dollar and other major currencies will narrow, reducing the upside potential for the U.S. dollar. Therefore, a neutral view on the U.S. dollar was adopted last month. In the Asian currency market, it is expected that the Bank of Japan will not raise interest rates again this year, the Japanese yen does not have much room for significant appreciation from current levels, and the forecast is maintained for the yen to reach 148 against the U.S. dollar by the end of this year