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1、,GlobalAsset AllocationThe AllocatorEmerging Momentum16 October 2012Fredrik NerbrandGlobal Head of Asset AllocationHSBC Bank Plc,abcGlobal Research We increase tactical risk as a result ofimproving economic conditions andsupportive valuations for risk assets We add weight in EM and metals but cutTre
2、asuries and credit On the 2nd anniversary of the Allocator,we review our portfolio performanceWe operate a tactical hit-and-run investment process around astrategic position that is very conservative owing to on-goingstructural concerns.Our tactical risk appetite is chiefly afunction of economic mom
3、entum and valuations.Both of thesefactors currently favour risk hence,we shift into a hit mode.These are our main changes:We increase our allocation to EM equities and EM localcurrency debt,with loose monetary policy in thedeveloped world likely to support flows into EM giventheir recent underperfor
4、mance and greater exposure toeconomic momentum.We add further risk by increasing our weight in metals,which are highly exposed to any cyclical shifts.Inaddition,they should benefit from a shift into real assetsstemming from on-going QE.We cut our allocation to credit with equity dividendyields attra
5、ctive following the recent strong performance,+44 20 7991 6771,of high yield and investment grade.,Daniel FennStrategistHSBC Bank Plc+44 20 7991 3025,We marginally reduce our weight in Treasuries as yieldsremain anchored near historical lows.The main risk to these changes is that the better trend in
6、economic data is halted either by developments in theeurozone,a prolonged period of fiscal-cliff uncertaintyfollowing the US election,or a further slowdown in growthin the emerging world.This months publication also marks the two-year anniversary,View HSBC Global Research at:http:/,of the Allocator.
7、To celebrate this momentous milestone,wereview the performance of our portfolio in terms of our best,Issuer of report:,HSBC Bank plc,and our worst calls.Overall,we have outperformed our,Disclaimer&DisclosuresThis report must be read with thedisclosures and the analyst certificationsin the Disclosure
8、 appendix,and with theDisclaimer,which forms part of it,LIBOR+4%target return at below target volatility.,Treasuries,Commodities,Cash,EMdebt,Credit,Equities,Gold,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,-,GlobalAsset Allocation16 October 2012Asset AllocationAsset Allocation overview,abc,Strategic
9、 Portfolio Weight,Tactical Portfolio Weight,_(3-year view)_ _(6-month view)_,New,Change from last,New Change from last,Last move in Tactical,Added to,Performance,weight,publication,weight,publication,Portfolio(date),portfolio on,since added,Cash,0.0%,0.0%,(14 September 2012),12 October 2010,0.2%,US
10、Treasuries,UST 5YUST 10YTIPS,10.0%10.0%13.0%,9.0%9.0%13.0%,-1.0%-1.0%,(15 October 2012)(15 October 2012)(12 September 2012),12 October 201012 October 20108 June 2011,9.6%24.9%14.8%,Corporate Credit,Investment Grade CreditHigh Yield Credit,8.0%7.0%,4.0%5.0%,-4.0%-2.0%,(15 October 2012)(15 October 201
11、2),12 October 201012 October 2010,16.0%19.2%,Emerging Market Debt,Local Currency FXHard Currency FX,6.0%6.0%,7.0%7.0%,2.0%,(15 October 2012)(14 September 2012),12 October 20109 December 2011,0.2%16.3%,Equities,Global TitansGlobal Select Dividend 100,4.0%1.0%,6.0%2.0%,(12 September 2012)(12 September
12、 2012),12 October 201012 October 2010,22.0%22.5%,Emerging Markets,15.0%,13.0%,5.0%,(15 October 2012),12 October 2010,1.5%,Commodities,Industrial MetalsOilAgricultureGold,2.0%2.0%1.0%15.0%,6.0%3.0%0.0%16.0%,1.0%,(15 October 2012)(28 April 2012)(21 August 2012)(14 September 2012),12 October 201012 Oct
13、ober 201012 October 201012 October 2010,-18.5%-5.1%10.7%30.9%,100%,100%,Estimated Portfolio RiskCurrent Portfolio YieldSource:HSBCPortfolio allocation,7.24%2.24%,8.11%2.06%,40%30%20%10%0%,Strategic,Tactical,40%30%20%10%0%,Investment processThe strategic asset allocation is the function of ascenario-
14、based investment process with a tactical riskoverlay to achieve a return target of three-month USDLIBOR+4%(in line with the historical equity riskpremium)and a volatility limit of 10-year US Treasuryvolatility.We use three main drivers of our tactical views:Economic activity,Relative valuations Fina
15、ncial conditionsSource:HSBC2,GlobalAsset Allocation16 October 2012Key Indicator snapshot,abc,Economic activityGLEI-Headline StrengthGLEI-Headline MomentumGLEI-Industrial MomentumGLEI-Consumer MomentumHSBC IP Surprise(30d change)HSBC G7 PMI Surprise(30d change)HSBC US Consumer CompositeValuationsEqui
16、ty/Credit Preference(CDS/DY)Equity/Credit Preference(CDS/EY),Negative risk,Positive risk,Our Global Leading Economic Indicators(GLEI)have ticked up sharply having hovered around the50%line for the past few months.Our headlinemomentum figure has hit 59%and,although strengthremains relatively weak,thi
17、s is as a result of certainweak US numbers and lagging effects of earlier weakmomentum.The Consumer Composite is at a three-year high,reflecting stronger house prices and the employmentpicture,while economic data is starting to surprise tothe upside.Relative value between credit and equities is show
18、ingthe highest equity preference of the past five years ona bottom-up basis using dividend yields.,Nerbrand zFinancial conditions continue to be strong.Despite a,Financial conditionsGlobal Bank Lending-SlopeGlobal Bank Lending-ImpulseHSBC Clog Index,slight drop in credit impulse,we see continued str
19、onglending growth in the US and China.Please see page 20 for definitions of the differentmodels.,3-year rangeSource:HSBCPortfolio Performance,Current level,Change from last month,Portfolio performance statistics,11511010510095Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12,11511010510095,Returns1 month3 m
20、onth6 month12 monthYear to dateSince InceptionAnnualised volatility,Strategic1.26%4.88%4.67%10.58%9.56%15.09%7.57%,Tactical0.77%4.31%3.66%9.60%8.45%13.52%6.28%,Benchmark*0.36%1.10%2.2%4.50%3.50%9.01%14.62%,*Benchmark return target:3m USD LIBOR+4%.,Source:HSBC,Tactical,Strategic,Benchmark,Volatility
21、benchmark:10 Year US Treasury volatilityInception:12 October 2010Source:HSBC,3,Sep-06,Sep-07,Sep-08,Sep-09,Sep-10,Sep-11,Sep-12,-1%,-1%,-4%,-2%,+2%,+5%,+1%,GlobalAsset Allocation16 October 2012Portfolio ChangesOverall CommentReduce US 5Y TreasuriesReduce US 10Y TreasuriesReduce Investment Grade Cred
22、itReduce High Yield CreditAdd EM Debt(Local FX)Add Emerging Market EquitiesAdd Industrial Metals,We increase risk in the portfolio,having seen economic momentum pick upand valuations become even more supportive of the risk trade.Treasury yields continue to be stretched,and we expect improved economi
23、cmomentum to generate higher returns in other asset classes.Our CDS-Dividend Yield model shows a much stronger preference for equitiesrelative to credit on a bottom-up basis.Investors can now receive a higher yield inequities than credit,and valuations appear stretched.High Yield credit yields are s
24、till attractive,but we are not being as well rewarded forthe risks as we have previously been.While hard currency debt has been a strong performer,we add to our allocation oflocal debt to increase exposure to emerging market currencies,which we feel arewell placed to gain from a turn in economic mom
25、entum and loose monetary policy inthe developed world.Emerging Market Equities are likely to be the main beneficiaries of an upturn ineconomic momentum.We prefer emerging to developed market equities on avaluation basis also.While industrial metals have gained significantly since we increased our we
26、ight in,abc,August,they still remain cheap relative to developed equity markets suggestingopportunities for relative outperformance.Source:HSBCWe see sufficient improvement in the economic data to justify adding risk to the portfolio on a tacticalbasis.Economic momentum is improving,and we see valua
27、tion support for the risk trade.Within the riskbasket,we prefer emerging market equities and industrial metals over developed market equities based oncurrent valuations.Emerging market equities now yield an extra 17bps over developed market equities,and this yield spread has historically led EM to o
28、utperform.,DM equities appear more stretched than other risk assets,EM equities are paying a higher yield,pointing to futureoutperformance,105,105,0.8%,40%,0.6%,100,100,0.4%,20%,0.2%,95,95,0.0%,0%,-0.2%,90,90,-0.4%,-20%,-0.6%,8580,8580,-0.8%,-40%,Mar-12,May-12DM Equities,Jul-12EM Equities,Sep-12Ind.
29、Metals,EM DY-DM DY(LHS)EM/DM 6m fwd return(RHS),4,Source:HSBC,Thomson Reuters Datastream,Source:HSBC,Thomson Reuters Datastream,Trade,GlobalAsset Allocation16 October 2012Emerging momentum Economic momentum is improving,our GLEI momentum is at thehighest level for 28 months Relative valuations show
30、strong support for equities over credit We prefer emerging market equities and metals to developedmarket equities,abc,Increasing riskWe see evidence to increase our allocation to riskassets on a tactical basis on the back of economicmomentum and valuation support.Our GlobalLeading Indicators(GLEI)mo
31、mentum hasincreased to 59%and the three-month movingaverage has crossed 50%.Equally,this issupported by valuations,as on a bottom-up andtop-down basis equities look cheap relative to,1.GLEI momentum is at 12-month highsHeadlineConsumerIndustrialsEmployment,credit.Recent strong data readings,particul
32、arly inthe US,give us further cause for optimism.,Source:HSBC,0%,20%12m Range,40%,60%80%Current,100%,Global Leading Economic,IndicatorsOur headline GLEI shows an improving economicclimate despite the on-going stresses in theeurozone and uncertainty surrounding the USelection and fiscal cliff.Headlin
33、e momentumticked up sharply on the month reaching 59%compared with 47%a month ago(Chart 4),andthe three-month moving average also movedabove the 50%expansion line.Although headlinestrength is marginally weaker,it tends to lagmomentum so very recent improvements ineconomic conditions are probably not
34、 reflected inthis indicator yet.,The main improvements in the headlinemomentum number came through better industrialand employment momentum,which are both atthe top of their 12-month ranges(Chart 1).A keypart of this has been the improvement in the USeconomic outlook.US employment is improvingThe da
35、ta that has probably grabbed the mostheadlines are the stronger US employmentnumbers.On 11 October,initial jobless claimscame in much lower than expected at 339,000,which is their lowest level since January 2008.This followed the September non-farm payrolls,which saw 142,000 jobs added to the labour
36、 force(including revisions),bringing the unemployment,5,0.5%,0.4%,0.3%,GlobalAsset Allocation16 October 2012rate down to 7.8%the lowest level sinceJanuary 2009.The number of people employed as,3.Improving consumer confidence points to strong equityperformance60%2%,abc,a percentage of the population
37、also increased bythe largest amount in the past 20 years on amonth-on-month basis(Chart 2).2.US employment as a fraction of the population increasedby the largest amount in the past 20 years in September0.8%0.7%,40%20%0%-20%-40%-60%,1%0%-1%-2%,0.6%,Jan-95,Jan-00,Jan-05,Jan-10,MSCI AC World 6m fwd(LH
38、S)Composite US consumer indicator YoY(RHS),0.2%0.1%,Source:HSBC,Thomson Reuters Datastream,MSCI,0.0%-0.1%,Current,20 year average,Previous 20 year,The difference between the two indicators is thatthe CB indicator measures confidence through,max%improvement in US Employed/Population ratio(m-o-m)Sourc
39、e:HSBC,Federal Reserve and consumer confidence is looking upAt the same time as the US labour market has startedto pick up,consumer confidence is also improving.Although our overall consumer momentum GLEI isnot at the top of its recent range(Chart 1),this globalaggregate masks some regional variatio
40、n.Inparticular,our US composite consumer indicator,which leads the official Conference Board(CB)measure of consumer confidence(Chart 5),has risensharply during recent months.4.Headline Global Leading Economic Indicators100%90%80%70%60%50%40%30%20%10%0%,surveys,whereas we try to look directly at keyf
41、actors that drive consumer sentiment.This includes house prices,unemployment,realwages,the participation rate,and the change andduration of unemployment.With the behaviour ofthe US consumer still a critical driver of globalgrowth,the improvement in confidence isencouraging.Historically,increases in
42、theconsumer composite have coincided with strongforward performance of equities(Chart 3),sorecent readings support a shift into risk.3210-1-2-3,Feb-93,Feb-97,Feb-01,Feb-05,Feb-09,6,Source:HSBC,Momentum(LHS),Strength,3m MAV Momentum(LHS),GlobalAsset Allocation16 October 20125.Consumer sentiment has t
43、icked-up.,6.which looks likely to lead to a rise in retail sales,abc,140120100806040200,21.510.50-0.5-1-1.5-2,15%10%5%0%-5%-10%,1.5%1.0%0.5%0.0%-0.5%-1.0%-1.5%,May-88 May-92 May-96 May-00 May-04 May-08 May-12,-15%,-2.0%,US consumer confidence(LHS)HSBC composite consumer indicator(RHS)Source:HSBC,Tho
44、mson Reuters DatastreamEmerging market momentumIn deciding where to take risk,it is instructive tosplit our headline GLEI momentum intodeveloped and emerging market components(Chart 7).Historically,the emerging marketmomentum indicator has tended to lead thedeveloped indicator out of its troughs.Bot
45、hindicators are currently in the upward phase oftheir cycle,but the level of emerging momentumis lagging behind developed markets.Thissuggests that there is likely to be further upside toEM markets relative to DM and so is supportiveof a move into risk in the emerging world.7.EM appears to lead DM m
46、omentum out of downturns100%80%60%40%20%0%,Jun-95 Jun-98 Jun-01 Jun-04 Jun-07 Jun-10US retail sales YoY 12m fwd(LHS)Composite US consumer indicator+100 YoY(RHS)Source:HSBC,Thomson Reuters DatastreamPMIs stabilisingIn conjunction with improving leading indicators,global manufacturing PMIs also starte
47、d tostabilise during September.Although 44%ofPMIs remain below 50 and falling(on a GDP-weighted basis),this is down from 61%lastmonth(Chart 8).The number above 50 and risinghas also increased dramatically from 1%to 45%.Our headline momentum GLEI tends to lead theISM by four to five months,so the imp
48、rovementin our momentum indicator suggests furtherupside in PMIs over the next few months.100%80%60%40%20%0%,Feb-93 Sep-94 Apr-96 Nov-97 Jun-99 Jan-01 Aug-02 Mar-04 Oct-05 May-07 Dec-08 Jul-10 Feb-12,3m MAV EM Momentum,3m MAV DM Momentum,Source:HSBC7,EMDebt(local),DMEquities,EMEquities,Inv.GradeCred
49、it,HighYieldCredit,Commodities,US10Y,Metals,-20%,GlobalAsset Allocation16 October 20128.Global PMIs have stabilised100%75%,656055,abc,5050%45,25%0%,403530,04,05,06,07,08,09,10,11,12,Below 50 and falling(44%)Above 50 and rising(45%)Source:HSBC,Thomson Reuters Datastream,Below 50 and rising(10%)Averag
50、e PMI(RHS),Above 50 and falling(1%),Allocation implicationsWith the leading indicators pointing towardsbetter prospects for growth,we increase ourallocation to risk.Historically,when headlinemomentum moves above 50%,the best-performing assets on a six-month forward basishave been Industrial Metals a
