To get the most out of this website it's best viewed on a more up-to-date browser. See how to update your browser.

Five insights in five minutes

Five in Five: India, market timing, EM bonds, climate change, Brazil
30 April 2021

    India’s pandemic crisis

    When daily cases passed six figures in the first week of April (the peak number in wave one), it was clear a new surge was upon the world’s second most populous country. Infections have remained above 300,000 for the seventh consecutive day. Despite a second wave, however, there is less uncertainty around the outlook of India’s economy compared with last year as the central government is keen to avoid a national lockdown and is currently administering two million vaccine doses per day. Meanwhile, the equity market seems to be more sensitive to the country’s long-term growth prospects, as evidenced by the S&P Sensex index recording a positive month-to-date return of 0.5 per cent despite the tragic news flow. Looking at the experience of the first wave, investors should also note that Indian stocks remained largely flat until the peak in cases in late September, then resumed their previous upward trend (see chart).

    Themes: India, equities

    India’s pandemic crisis   

    Stock market timing

    For equity investors with a nervous persuasion, sell-signs are everywhere. Another S&P 500 all-time high this week. Record first quarter earnings for Hong Kong’s bourse on Wednesday, thanks to rampant trading and a nine-fold jump in initial public offerings. It’s the best beginning to a year for global listings too, with 50 per cent more firms going public than at the peak in 2000. We know what happens next, worriers fret. Sure, but after a fall is the bounce. Timing both is impossible – and those rebound days are critical to performance. Missing the ten best trading sessions in many equity markets over the past two decades (which tend to follow within days or weeks of a sell-off, just when investors are most scared) reduced total returns by up to a third. Meanwhile, Bloomberg data show that 15 of the 22 most popular US market timing indicators have lost money so far this year. All have underperformed a buy and hold strategy.

    Themes: global equities

    Stock market timing 

    Hedged EM bonds

    Credit funds may be sexier, but the profile of currency-hedged emerging market government debt has been attractive enough since the financial crisis – generating a return of 60 per cent over 13 years. That is almost 900 basis points better than Treasuries, and with twice the Sharpe ratio. Covid, however, depressed the yields and flattened the curves that some emerging market bond investors use to fund their hedging costs, making the strategy less desirable. But higher US rates have lifted the Bloomberg Barclays EM local currency government bond index yield by 65 basis points since January, while two versus five year spreads have widened in a dozen emerging markets. Hence the average yield pick-up on a dollar-hedged basis is more than one per cent again over five years. Push duration to a decade and the 3.3 per cent in Indonesia, 2.7 per cent in South Korea and 2.5 per cent in China are beginning to look desirable again indeed.

    Themes: emerging market fixed income, Asia fixed income

    Hedged EM bonds 

    Climate change

    President Biden’s plans to aggressively cut US carbon emissions have greenlit clean energy stocks. The S&P Global Clean Energy index has outperformed global equities by five per cent in the week since. Per the chart below, these new commitments bring America towards the top of the table for projected emissions cuts by 2030. The poor showings for China and India reflect their strong economic growth trajectories and accompanying carbon footprints. To be fair, the developed world has a larger debt to repay. Excluding land use and forestry, the US, Europe and UK accounted for over half of greenhouse gas emissions until the 1970s. Nonetheless, more cuts will be needed from everyone. G20 emissions are on track to rise 45 per cent from 2010 to 2030. With such tailwinds, a ten per cent premium to book value for clean energy stocks over global equities appears justified, especially considering their 30 per cent higher return on capital.

    Themes: Climate change, clean energy, global equities

    Climate change 

    Brazil equities

    Political uncertainty and rising coronavirus infection rates have left the MSCI Brazil index a tad confused. It trails the broader emerging markets benchmark year to date but is ahead by three percentage points over the last three months. Brazilian stocks remain compelling. A forward price to earnings ratio of nine times compares with 15 times for EM equities overall. Brazil is also in the cheaper half of BRIC countries on a price to book basis. And let’s not forget, as we’ve mentioned before, that Brazil’s market cap versus the size of its economy is 60 per cent less than its Asian peers – so there’s plenty of upside. Lastly, with 28 per cent and a quarter of the MSCI Brazil index allocated to financials and basic material stocks respectively, investors would benefit from further rotations into cyclical sectors as the global economy recovers.

    Themes: Brazil equities

    Brazil equities 


    Important information

    For Professional Clients and intermediaries within countries and territories set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.

    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 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 and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade. Mutual fund investments are subject to market risks, read all scheme related documents carefully.

    The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document 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. We 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 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 herein are those of HSBC Global Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. 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.

    We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.

    HSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. (HSBC Group). HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities:

    • In Argentina by HSBC Global Asset Management Argentina S.A., Sociedad Gerente de Fondos Comunes de Inversión, Agente de administración de productos de inversión colectiva de FCI N°1;
    • In Australia, this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL 232595, for HSBC Global Asset Management (Hong Kong) Limited ARBN 132 834 149 and HSBC Global Asset Management (UK) Limited ARBN 633 929 718. This document is for institutional investors only, and is not available for distribution to retail clients (as defined under the Corporations Act). HSBC Global Asset Management (Hong Kong) Limited and HSBC Global Asset Management (UK) Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services they provide. HSBC Global Asset Management (Hong Kong) Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws, which differ from Australian laws. HSBC Global Asset Management (UK) Limited is regulated by the Financial Conduct Authority of the United Kingdom and, for the avoidance of doubt, includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013, under the laws of the United Kingdom, which differ from Australian laws.
    • in Austria by HSBC Global Asset Management (Österreich) GmbH which is regulated by the Financial Market Supervision in Austria (FMA);
    • in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 37 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;
    • in Canada by HSBC Global Asset Management (Canada) Limited which provides its services as a dealer in all provinces of Canada except Prince Edward Island and also provides services in Northwest Territories. HSBC Global Asset Management (Canada) Limited provides its services as an advisor in all provinces of Canada except Prince Edward Island;
    • in Chile: Operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilean state. Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;
    • in Colombia: HSBC Bank USA NA has an authorized representative by the Superintendencia Financiera de Colombia (SFC) whereby its activities conform to the General Legal Financial System. SFC has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;
    • in Finland, Norway, Denmark and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Stockholm branch of HSBC Global Asset Management (France), regulated by the Swedish Financial Supervisory Authority (Finansinspektionen);
    • in France, Belgium, Netherlands, Luxembourg, Portugal, Greece by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026);
    • in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin;
    • in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission;
    • in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India;
    • in Italy and Spain by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Italian and Spanish branches of HSBC Global Asset Management (France), regulated respectively by Banca d’Italia and Commissione Nazionale per le Società e la Borsa (Consob) in Italy, and the Comisión Nacional del Mercado de Valores (CNMV) in Spain;
    • in Mexico by HSBC Global Asset Management (Mexico), SA de CV, Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC which is regulated by Comisión Nacional Bancaria y de Valores;
    • in the United Arab Emirates, Qatar, Bahrain & Kuwait by HSBC Bank Middle East Limited which are regulated by relevant local Central Banks for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority.
    • in Oman by HSBC Bank Oman S.A.O.G regulated by Central Bank of Oman and Capital Market Authority of Oman;
    • in Peru: HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Seguros in Perú whereby its activities conform to the General Legal Financial System - Law No. 26702. Funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Perú and is not for public distribution;
    • in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore;
    • in Switzerland by HSBC Global Asset Management (Switzerland) AG whose activities are regulated in Switzerland and which activities are, where applicable, duly authorised by the Swiss Financial Market Supervisory Authority. Intended exclusively towards qualified investors in the meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA);
    • in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan);
    • in the UK by HSBC Global Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority;
    • and in the US by HSBC Global Asset Management (USA) Inc. which is an investment adviser registered with the US Securities and Exchange Commission.

    INVESTMENT PRODUCTS:

    • Are not a deposit or other obligation of the bank or any of its affiliates;
    • Not FDIC insured or insured by any federal government agency of the United States;
    • Not guaranteed by the bank or any of its affiliates; and
    • Are subject to investment risk, including possible loss of principal invested.

    Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided as an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively 'the MSCI Parties') expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)

    Copyright © HSBC Global Asset Management Limited 2021. All rights reserved. No part of this publication 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 HSBC Global Asset Management Limited.