According to the asset manager, three themes would govern the performance of the Chinese stock market in 2015: reforms in China’s state-owned enterprises, the recently unveiled Stock Connect (which gives investors access to China A-shares) and the expected monetary easing measures.
“The Chinese government is expected to continue using targeted policy measures to push forward the reform agenda to ensure growth remains within a reasonable range,” the fund house said in its 2015 outlook statement.
It expects China's annual GDP growth rate to moderate steadily.
From a sector perspective, the fund house finds cyclical stocks, such as technology and financials cheaper compared to defensive stocks such as consumer staples and healthcare.
Apart from China, the asset manager has a preference for Indian equities due to their re-rating potential and Korean shares, which it believes are still trading at low valuations.
More volatility, low returns
Despite the high likelihood of the US rate hike this year, HSBC said both equities and corporate bonds in Asia remain attractive in 2015 as corporates continue to record strong profitability and offer good valuations.
However, the fund house said volatility is likely to increase during the year, and returns are not expected to be as stellar as in the previous years.
“The average return for risk assets over the next ten years is likely to be modest. Investors are likely to be rewarded by being overweight equities over bonds and cash in a diversified portfolio,” said Bill Maldonado, chief investment officer, Asia Pacific and strategy CIO for equities.
“While volatility is likely to increase in 2015, especially for equities in emerging markets in Asia, there are still attractive long-term opportunities in the equity market. Stock selection based on corporate profitability and valuation remains the key to outperformance in this environment,” Maldonado added.
The firm sees the global economy continuing to recover, with lower oil prices supporting growth and reducing inflationary pressure.
But the firm said most countries will continue to grow at rates below their potential in 2015, and the relative weakness in global trade compared to the past two decades, will continue to undermine growth in emerging markets.
Positive on RMB Bonds
HSBC is positive on corporate bonds, especially in emerging markets in Asia. It expects the asset class to provide higher risk-adjusted returns than "safe-haven" developed market government bonds over the long term on the back of a better valuation outlook.
Asian corporate credit should remain supported in the near term due to ample global liquidity and still reasonable yields.
“Despite investors’ concerns over the US interest rate hikes, the Asian bond market still presents selective opportunities to investors who are searching for yield in the current low interest rate environment. Credit selection for attractive yield carry will be the investment focus going into 2015,” Chan added.
The outlook for RMB bonds remains positive over the medium-to-long term, despite anticipation of higher volatility in the USD/RMB exchange market.
“Besides offering higher yield carry and having exhibited lower volatility in the past, RMB bonds will also benefit from an easing monetary policy bias in China.”
Along with this, the low sensitivity to US interest rate movements and low correlation with other asset classes is also supportive of good risk-adjusted returns for RMB bonds.
“RMB bonds are of growing significance on a global scale. With the opening up of China’s capital markets, the onshore Chinese bond market will become too big to ignore for bond investors,” said Cecilia Chan, CIO of fixed income, Asia Pacific.