HSBC has published their mid year investment market outlook and here are the few highlights from this document:
The Fed is taking a pause on the fastest rate hiking cycle since 1980.
Market volatility is low, credit spreads are tight and equity multiples look rich.
Emerging markets are out of sync and completely decoupled from western economies.
A recession in the western developed economies could hurt the Asian production hubs which rely heavily on the exports.
Emerging markets offer lower valuations and higher potential forward multiple than in developed markets.
There are various warnings of recession in the Eurozone and the US however the equities and the credit markets looks of of sync with that signal.
Growth stocks have been performing better than value stocks.
It is still unclear if bonds will be able to offer a reliable diversification. The 60/40 portfolio may not suit the new economic and policy environment.
Expected policy changes f rom the Bank of Japan in the second half of the year, it is currently breaking free from deflation. The yen has scope to appreciate versus the dollar.
Valuations are rising well ahead of earnings benefit being realised.
Private credit is well positioned to after the collapse of the 3 regional US Banks which have lead to an increased pressure from regulators.
The pace of private fund raising seems strong.
The US Agency MBS Market is the second largest bond market in the world after the US Treasury market with a daily turnover of $200 bn.
The supply for the new mortgage bonds is currently low due to the high interest rate environment.
Investors of a Collaterised Mortgage obligations take exposure to a derivative called 'TBA' (To be announced) when they wish to gain quick and liquid exposure to the Agency MBS market. The distinguishing feature of TBA transaction is that actual identity of the securities to be delivered at the settlement is not specified on the date of the execution.
The issue, face value, term, coupon and month of settlement are the only parameters on the basis of which the decisions are made.
An impressive performance from the mega-cap companies have masked a relatively low performance from the rest of the market.
The top 8 companies now in the US now account for 25% of the S&P 500 weight.
The US Large-mid cap index consists of over 700 stocks but saw 98% of its returns this year coming from the same largest 8 stocks.
China's share in the Global EV market is set to decline from 60% currently to sbout 30% by 2030.
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