Despondency Is The Point Of Maximum Opportunity, Says HSBC Private Bank

Max Skjönsberg

2 May 2012

Markets will be volatile over coming weeks and months, but this should be viewed as an opportunity not a threat, says HSBC Private Bank.

“Despondency is point of maximum opportunity, in our view,” the bank says in an investment note in which it highlights the allure of the US equity market. “In addition to the relatively healthy domestic economy, we like US equities because there are a number of large-cap multinationals with strong balance sheets and the ability to tap into the vein of emerging market growth,” says Willem Sels, UK head of investment strategy at HSBC Private Bank.

The UK private bank also views emerging market equities as attractive, as they are relatively cheap after a period of underperformance.

Despite greater volatility relative to developed market stocks, HSBC believes that they can deliver better risk-adjusted returns as their valuation discount unwinds in the next 12 months. The bank singles out China, Russia, Brazil, Indonesia and Malaysia as the markets with the greatest potential.

Another way for investors to gain exposure to the growth stories in emerging economies is to buy multinationals operating in those markets: “A number of European, US, and UK-listed companies with strong, globally recognised brand names derive a significant and increasing amount of their revenues from the emerging markets,” Sels says. “Moreover, a number of these multinationals have healthy balance sheets and durable dividends which can mean that they prove to be less volatile than direct emerging market investments.”

A third way investors can capitalise on the growth of a high-spending middle class in emerging markets is investing in Western companies benefitting from the increase in demand for fine wines, designer clothing, jewellery, cars and other luxury goods.

Within global equities, HSBC believes that the technology sector is the best placed to deliver returns and describes it as one of the few sectors which demonstrates innovation and an ability to grow market share. This trend will continue, in the bank’s view, and despite its outperformance, earnings growth has kept up with share prices.