HSBC Strategy Team: Key Market Concerns Are Overblown, Maintains Maximum Equity Overweight
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HSBC's multi-asset strategy team, led by Max Kettner, keeps its maximum equity overweight, dismissing bond-supply fears, yen-carry unwind risk, and midterm-election uncertainty one by one — and points to Q3 earnings season as the next upside catalyst.
Is the bond sell-off really that scary?
HSBC notes the sell-off since late August was partly driven by rising oil prices, but 30-year Treasury yields are now back near late-July levels.
Two signals show demand is intact: swap spreads — a gauge of how willing the market is to hold government bonds — have widened, and auction bid-to-cover ratios have risen.
This means → selling pressure is real, but buyers haven't left — the supply-shock narrative is overblown.
Credit spreads on mega-cap tech companies have recently stabilised, suggesting no panic in corporate-bond markets either.
Will a stronger yen trigger a carry-trade blowup?
The worry: a rising yen forces Japanese investors to dump overseas assets, setting off a chain reaction.
HSBC pushes back: after adjusting for currency hedging, the US-Japan bond-yield gap shows almost no correlation with subsequent capital repatriation.
In plain terms = Japan's big money typically locks in hedging when it buys foreign bonds — whether the yen rises or falls barely affects their holding decisions. The "carry-trade stampede" script lacks data support.
Will the midterm elections drag down stocks?
HSBC cites historical data: the S&P 500 posted positive returns from September through midterm elections more than 50% of the time — and the same holds from election day through year-end.
The sole exception: investment-grade credit, which tends to underperform in the September-to-election window.
This means → election uncertainty is not a statistically significant drag on equities, but IG-credit holders should watch for short-term volatility.
What about an escalation in the Middle East?
HSBC argues that even if tensions intensify, strong earnings-per-share expectations heading into Q3 reporting season (starting mid-October) will support equities and corporate credit.
Two additional upside catalysts: Saudi Arabia's interest in reopening the East-West Pipeline, which would ease oil-supply concerns; and rising betting odds for a Democratic House win, which could push the Trump administration toward near-term policy shifts.
This reflects HSBC's core view: earnings fundamentals matter more than geopolitical noise for market direction.
What does HSBC recommend buying?
Preferred positioning: technology stocks, especially in the US and Asia, plus European bank stocks.
The team maintains a positive outlook on nearly all asset classes, with equities at maximum overweight.
In plain terms = HSBC's stance is "fears are overpriced, earnings are underpriced" — Q3 reporting season will be the first real test.
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