The bank maintains an overweight position in emerging market equities and alternative investments, according to its mid-year investment report.
“Emerging market equities are our principal overweight as profit margins improve and valuations remain compelling,” said Fan Cheuk-wan, head of investment strategy for Asia, who joined the bank in April.
“Earnings revisions by financial analysts seem to have bottomed out and even begun to turn upward in certain key emerging market economies. Coupled with softness in the US dollar and recovery in risk sentiment, we see support in fund flows into emerging markets assets."
The bank also likes Asian equities, an area where it restated overweights in China, Singapore, Indonesia and the Philippines. Singapore is one of the more stable, defensive and low-beta Asian markets that offers attractive dividend yield at around 4.5%, the report said.
"On the other hand, we recommend assets with low correlations such as hedge funds for portfolio diversification,” she added.
One rate hike
Global risk appetite is likely to remain supported by the Federal Reserve’s cautious and gradual approach toward rate hikes as well as the stabilisation of commodity prices, the report said. A soft dollar may also enable rate cuts in some emerging market economies.
Central banks across the globe are adopting a more reserved approach toward monetary policies in 2016, the report said. HSBC expects only one US rate hike this year, probably in September, while Europe and Japan renew their quantitative easing efforts.
The search for yield has seen growing interest in crossover credit, when a bond is speculative grade but very close to investment grade or vice versa. This has been happening with BBB and BB ratings.
US dollar investment grade bonds are also gaining interest from clients due to their comparatively attractive valuations, the bank said.