2026-07-01 07:03

Key takeaways We believe market concerns regarding mega IPOs and stretched valuations will be offset by solid earnings growth across most S&P 500 companies, supported by AI-led innovation. The more hawkish tone from the new Fed Chair reinforces our view that policy rates will remain steady through 2026 and 2027. We remain overweight on US equities and have become more bullish on the USD. In the UK, while May’s inflation figures remained above target and economic growth indicators were mixed, we view inflation risks as more balanced following the interim peace agreement. We now expect no rate hikes in 2026. Meanwhile, political uncertainty persists after Starmer’s resignation. We maintain our neutral stance on UK gilts and UK equities while overweighting 5-7-year GBP investment grade credit. Gold did not rally during the Middle East conflict and has largely moved in tandem with equities. Our analysis indicates that US yields are the primary driver of gold prices. We believe gold may remain range-bound in the near term amid elevated real yields and a stronger USD. However, demand for portfolio diversification, central bank buying and steady ETF inflows should support gold prices over the medium term. We continue to view gold as an effective diversifier against broader portfolio risks. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/a-new-fed-chair-and-a-stronger-usd-in-focus/

2026-06-30 07:03

Key takeaways ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF. Source: HSBC https://www.hsbc.com.my/wealth/insights/fx-insights/fx-navigator/when-a-strong-usd-returns-winners-vs-laggards/

2026-06-29 07:02

Key takeaways Amid falling oil prices but rising El Niño risks, we forecast a slightly improved growth-inflation mix, but challenges remain. The FX package will likely push the BoP into surplus, supporting the INR, and easing domestic financial conditions. We forecast rate hikes, but expect a shallow cycle; and some fiscal slippage, but not a one-for-one rise in borrowing. How resilient has activity been to the energy shock? Growth has slowed since the year began, but sectors diverge. Manufacturing and exports remained resilient as firms front-loaded production. Lower US tariffs created a window to boost exports ahead of possible Section 301 tariffs, while energy uncertainty drove inventory builds. In contrast, trade, transport and construction weakened amid higher energy costs. Which sectors will be resilient, which not? Falling oil prices and easier financial conditions (led by the RBI’s FX package) should lift FY27 GDP growth to 6.3% (6% earlier). Risks remain from El Niño-driven heatwaves hurting food output. The informal sector may suffer most, while the formal sector stays relatively resilient, supported by liquidity and personal loan growth – a split reminiscent of the post-pandemic years. Will the RBI’s FX package swing the BoP? The “all-in” FX package to attract inflows and the fall in oil prices have flipped the BoP outlook. We now forecast FY27 oil at USD85/b (USD95/b earlier), a narrower c/a deficit (of 1.7% of GDP), and a cUSD25bn BoP surplus (after two years in deficit), likely stabilising the INR. The FX package inflows are repayable; eventually ‘permanent’ FDI inflows will be needed. Will the fiscal slippage be disruptive? Fiscal costs have risen. But there are offsets too (stabilisation fund, windfall taxes, and disinvestment). The central government fiscal deficit could be 0.4% of GDP (INR1.5trn) higher than budgeted, but may not lead to higher 1-1 borrowing, given other funding options. Markets will watch for OMO sales to drain liquidity. States are near the 3% cap; spending may shift from capex to current. How high could inflation rise? Pass-through from WPI to PPI has been stronger for consumer goods, while pass-through to CPI is incomplete. Historically, firms pass through c70% of costs over 3-4 months, so core CPI should firm soon. An El Niño could lift food inflation, keeping FY27 inflation at 5.1%. Inflation could average just under 6% for two quarters from October, before settling back at 4% in 2HFY28. Will the RBI react to growth or inflation? Expect a shallow RBI hiking cycle: two 25bp hikes in 4Q 2026, taking the repo rate to 5.75%. Inflation sitting near the top of the 2-6% band for about six months is hard to ignore. But the cycle should be shallow because inflation is forecast to fall back to 4% in 2HFY28 and growth is likely to weaken from the September quarter. Before we’d even had time to celebrate the latest drop in oil prices, fears of a ‘very strong El Niño’ took centre stage. With multiple shocks hitting at once, we tackle the key questions for the economy and set out our latest forecasts. Q1. How resilient has activity been to the energy shock? Our 100 indicators of growth database shows that growth momentum has been gradually easing since the start of the year (see exhibit 1). These headline numbers, however, hide some important nuances. We find that manufacturing and exports have been remarkably resilient (see exhibit 2). Frontloading seems to be supporting growth on two fronts: One, the fall in US tariff rates on Indian exports in early 2026 (from 50% to 18%, and then to 10% when the IEEPA tariffs were struck down), and fears that they may be raised again (when new tariffs from Section 301 potentially kick in), has created a window to bunch up exports (see exhibit 3). Two, firms with access to energy have been front-loading manufacturing, given fears of energy sources drying up (see exhibit 4). This has raised output growth and urban jobs over the last few months. The June flash PMI showed a rise in the order-to-inventory ratio, led by strong domestic orders, which is likely to contribute to resilient manufacturing activity over the next few months. On the other hand, trade and transport as well as construction activity have fallen most, likely because of higher energy prices and unavailability of industrial feed (see exhibit 5). As these make up a larger share of economic activity, the latter has gradually slowed. Q2. Which sectors will be resilient, which not? Until a month ago, there were three concerns around India’s macroeconomy – high oil prices, tight domestic financial conditions, and the likelihood of a ‘very strong El Niño’. The first two concerns have eased. Oil prices have fallen (see exhibit 6). We expect the FX package announced by the RBI to attract foreign inflows (deposits from non-resident Indians, ECBs, and foreign bank borrowing) which will have to be invested domestically. Even before the inflows have begun, interest rates across a host of financial instruments are falling in anticipation (see exhibit 7). Financial conditions don’t look as tight as a month ago. On the back of this, we have raised our FY27 GDP forecast from 6% to 6.3%. Alas, concerns around the El Niño hurting growth remain strong. Our analysis shows that rising temperatures and heatwaves are far more disruptive for food production and inflation than insufficient rains . We find that the temperature spikes in El Niño years are rising with time, and are now crossing important thresholds, where they not only impact perishable crops such as fruits and vegetables, but also hardy ones like rice, wheat, pulses, edible oils, poultry, and dairy (see exhibit 8). An El Niño could shave off 0.3ppt from growth, going by previous experience (see exhibit 9). On sectoral splits, we believe the informal sector, comprising rural workers and urban informal workers, is impacted most during supply shocks. Heatwaves will impact farmers directly, and the consequent high inflation will likely impact urban informal workers, who tend to be price sensitive. Together, this group makes up two-thirds of India’s consumption pie (see exhibit 10). In contrast, the formal sector might be relatively better protected. Already we are seeing two-wheeler sales (proxy of rural and informal demand) begin to slow compared to passenger vehicle sales (proxy of urban formal sector demand, see exhibit 11). This group is not as sensitive to inflation and may benefit from improved domestic liquidity and rising personal loan growth. Indeed, corporates had resorted to domestic borrowing over foreign borrowing when the INR was weakening. As the INR stabilises and the RBI’s FX package incentivises foreign borrowing again, bank lending may pivot away from corporates towards personal loans. Q3. Will the RBI’s FX package swing the BoP? Going into the June 5 policy meeting, there were hopes that some kind of FX package which attracts foreign inflows would be announced. After all, oil prices were on the boil, it was turning out to be a third year of BoP deficit, and the INR was falling against the USD. Many options were on the table. Eventually the authorities opted for them all, in an “all-in” FX package. Soon thereafter, oil prices began to fall too. With these two back-to-back developments, BoP dynamics seem much altered. We now forecast oil to average USD85/b in FY27, down from USD95/b just a month ago. On the back of lower oil and other industrial feed prices, and steps to lower gold imports, we forecast a narrower current account deficit of 1.7% of GDP vs 2.3% forecasted earlier. Furthermore, we forecast the capital account to be higher by USD65bn than previously forecasted, leading to a BoP surplus of about USD25bn, which is broadly in line with the 10year average (see exhibit 12). No surprise that the INR has strengthened against the USD in June (see exhibit 13). Having said that it must be remembered that the FX package points to one-time inflows which need to be repaid over time. From that perspective, the economy has bought time, in which it can undertake important reforms, which attract more permanent inflows, like FDI (see exhibit 14). How the INR eventually behaves will also depend on central bank behaviour. If it buys dollars to build up FX reserves (given its short forward book), the INR may not strengthen. Yet, substantial inflows may keep it from weakening rapidly. Q4. Will the fiscal slippage be disruptive? Since the start of the energy crisis, the government has sought to cushion households and small firms through a mix of tax cuts and subsidies like oil excise duty reductions and higher fertiliser subsidies, alongside measures such as the credit guarantee scheme. Taken together, these steps are likely to create a fiscal drag of around 1% of GDP. Some of this impact should be offset by receipts and savings, including the economic stabilisation fund, windfall profit tax on petroleum related exports, higher disinvestment proceeds, and expenditure rationalisation . These offsets should help contain the net fiscal slippage to roughly 0.4% of GDP (INR1.5tr, see exhibit 15 for details). We therefore expect the Centre’s fiscal deficit to widen to 4.7% of GDP versus the budgeted 4.3%. Bond markets are likely to scrutinise government finances more closely in 2HFY27 when the fiscal consolidation narrative comes back into sharper focus. Even so, we don’t expect a slippage of INR1.5trn to translate into higher market borrowing one-for-one, given alternative funding channels such as the small savings fund and higher T-bill issuances. The attention, instead, may move to the role of the RBI, and whether it will do OMO purchases following the large purchases last year (see exhibit 16), or pivot to OMO sales, to take out some of the excess liquidity following the FX package-induced inflows At the state level, the fiscal deficit (excluding the centre’s capex loans) has already reached the 3% ceiling in FY26, leaving limited room for further slippage. That said, the composition of spending could shift, with a tilt towards current expenditure at the expense of capex (see exhibit 17). Q5. How high could inflation rise? India’s inflation landscape has received a meaningful data upgrade with the rebasing of the CPI and WPI series, alongside the introduction of an output PPI. The 9%+ inflation for both PPI and WPI in May points to elevated price pressures at the producer and wholesale levels, driven largely by higher fuel costs (see exhibit 18). Interestingly, the pass-through from WPI to PPI thus far, has been led more by consumer goods like electronics, furniture and apparel (see exhibit 19). CPI inflation, by contrast, remains benign and close to the RBI’s 4% target in May, suggesting that pass-through from producers to consumers is still incomplete. The PMI price indices tell a similar story, highlighting a clear wedge between rising input costs and more subdued output price increases (see exhibit 20). Our statistical work suggests corporates typically pass through around 60-70% of cost increases to consumers over roughly 3-4 months. We therefore expect core CPI inflation to firm over the next few months as second-round effects from the energy shock begin to feed through. But the inflation story doesn’t stop there. The likelihood of a ‘very strong El Niño’ will result in warmer temperatures, less rains and higher food inflation. Our research shows that an El Niño can be a lot more hurtful now than in the past as its impact is no longer confined to perishable crops like vegetables and fruits but increasingly extends to more durable staples like cereals, pulses, and oilseeds, and even livestock (impacting dairy, poultry and fishery products). At the start of the year, our inflation forecast for FY27 was 4%. The two shocks can raise it to 5.1% (see exhibit 21). We also believe that some of the El Niño pressure could be felt in the winter crop, keeping inflation elevated in the first half of FY28. We forecast CPI inflation to average just below 6% for two quarters starting October. Thereafter, we forecast inflation to average 4% in 2HFY28 (see exhibit 22). Q6. Will the RBI react to growth or inflation? Supply shocks are never easy. Eventually we believe this will be a shallow rate hiking cycle. We expect two rate hikes of 25bp each in 4Q 2026, taking the repo rate to 5.75%. The reason for hikes is inflation as the RBI may not be able to look through CPI price increases which average close to the upper end of the 2-6% target range for around six months. The reason for a shallow rate hiking cycle is also inflation, which could settle back closer to the 4% target range in 2HFY28. Alongside this, weak growth prints will also likely tie the central bank’s hands. We expect a meaningful fall starting in the September quarter. The central bank will also have to play a proactive role in liquidity management, taking out excesses induced by the FX package. There are several options available, ranging from temporary (VRRRs) to the more permanent (OMO sales, and even CRR hikes, if needed). https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/frequently-asked-questions/

2026-06-26 12:01

Key takeaways The YTD performance gap between China’s A-shares (e.g. CSI300: +8.4%) and the MSCI China Index (-15.5%) or Hang Seng Index (-10.0%) is material. The gap is even wider in the tech space. Year-to-date, the ChiNext Index, a Nasdaq-style board on the Shenzhen Stock Exchange, recorded 36.5% of return vs HSTECH’s -20.1%. While this is to some extent reflective of the structure of the global AI rally so far, the difference is amplified by China’s K-shape economic story. For that reason, we currently prefer A-shares over H-shares, driven primarily by A-share’s much larger exposure to AI-related hardware beneficiaries. Having said that, we believe it’s important to be positioned in the full-arc AI opportunity set in China, which means taking exposure to some of the large offshore listed internet and cloud players, which are critical enablers of AI transition and adoption. Please refer to the full report for details about the event and our investment view. “Overweight” implies a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. “Underweight” implies a negative tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. “Neutral” implies neither a particularly negative nor a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/chinas-bifurcated-economy-and-the-full-arc-ai-opportunity/

2026-06-25 12:01

Key takeaways ASEAN’s economies are facing multiple shocks, from a brewing El Niño to US tariff uncertainty… …yet activity is set to prove surprisingly resilient, supported in parts of the region by surging demand for AI hardware. Rising price pressures are posing a risk, as do growing budget deficits, but growth should continue to trot along. Indonesia’s economic performance remains stronger that market sentiment suggests, with a policy pivot underway to strengthen confidence. Thailand has seen investment bounce of late, but the lift in growth may not prove durable. Malaysia is riding the AI wave, but a possible election could sap reform efforts. The Philippines suffers from a surge in prices and fiscal inaction, even if its fundamentals remain solid. Vietnam harbours ambitions for more, even if growth is already at an impressive pace given energy and tariff headwinds. Singapore remains its resilient self, chugging along with relative ease, and taking a growing share of the AI boom. Economy profiles Key upcoming events Source: LSEG Eikon, HSBC Indonesia Market strain, policy pivot There is much attention on Indonesia lately. Across the major asset classes - equities, bonds and FX - Indonesia has underperformed the broad Emerging Markets (EM) index YTD. A cursory glance suggests that even though markets have not performed too well, the economy is chugging along fine. GDP rose 5.6% in the quarter ending March, higher than the 5.1% growth in 2025. And even though inflation has risen, it remains well within the 2.5-3.5% range. A deeper review, however, suggests that the economy has started to gradually reflect the impact of the energy shock, and markets may be partly reflecting that. On growth, the latest readings show a fall in retail spending, consumer sentiment and export orders. There has been a significant amount of frontloading in fiscal expenditure, and belts may need to tighten in subsequent months to meet the 3% fiscal cap. We forecast GDP to grow 4.7% y-o-y in 2026 (versus 5.1% in 2025). PMI input prices have risen quickly and are gradually pushing up output prices. We forecast inflation to average 3.5% in 2026 (versus 1.9% in 2025). The latest trade data shows a fall in the monthly surplus, with export volumes falling even as import volumes shot up. Meanwhile capital inflows remain sluggish, weighing on the exchange rate. Supply shocks such as rising energy costs and adverse weather are always tricky to deal with because they come with trade-off. Generally, inflation rises and growth falls during these shocks. Often, policymakers have to choose between the two. Some observers may see the Indonesian rupiah (IDR) as the primary challenge to address. The underlying driver of the IDR’s depreciation seems to be the balance of payments, which is likely to post its second negative annual reading in 2026. It’s tempting to argue that Indonesia does not face a current account problem, given the modest shortfall of -0.1% of GDP in 2025, and that the bigger concern is weak capital inflows, which came in at -0.3% of GDP in 2025. But, in practice, these two factors are interlinked. A low current account deficit can reflect subdued investment demand. Indeed, we find that corporates are cash rich but reluctant to invest. And weak investment and growth prospects can hurt capital inflows. Indonesia’s persistent negative output gap Source: CEIC, HSBC Price pressures are rising Source: CEIC, HSBC Malaysia Resilience is a virtue Until the Middle East conflict, the Malaysian economy was in a “Goldilocks” stage, with strong growth and stable inflation. But the conflict increases the possibility of downside risks to growth and upside risks to inflation, even if Malaysia has demonstrated more resilience than regional peers, as it is not only a net energy exporter, but also a key beneficiary of the sustained AI cycle. This is not to say that Malaysia will be insulated from the energy shock, but the impact should be smaller than for other economies, which are heavily dependent on energy imports from the Gulf. Malaysia has made a strong start to the year, with GDP up 5.4% y-o-y in 1Q26. While construction cooled from double-digit to single-digit growth, the sustained strength in manufacturing and services has more than offset the moderation. Exports remain strong, thanks to the ongoing AI-driven tech cycle. On a 3-month moving average basis, Malaysia’s electronics exports surged to 30% y-o-y. Elsewhere, inflation has been well-behaved for a sustained period of time, averaging only 1.7% y-o-y in the first four months of 2026. This gives Malaysia one of the lowest inflation prints in ASEAN, significantly lower than peers like the Philippines and Vietnam. In the face of elevated energy prices, it is not hard to understand why: Malaysia is blessed with the region’s lowest petrol prices. Using the most common RON95 price as a gauge, Malaysia’s RON95 remains at MYR1.99/l (USD0.5/l), 1/10 of that in Hong Kong, 1/5 of Singapore, 1/3 of Thailand and 1/2 of Vietnam. However, this is primarily due to heavy subsidies: RON95 at the market rate, or the unsubsidised rate, is twice that of the subsidised price. This comes with significant fiscal costs. The monthly subsidy bill for energy has risen tenfold from MYR700m to MYR7bn due to the conflict. The hefty subsidies raise questions on what comes next for the RON95 policy, as it imposes huge pressures on Malaysia’s fiscal coffers. But the timing of any potential adjustments is also tricky, as the general election is approaching fast. Overall, we maintain our GDP growth forecasts at 4.5% for 2026 and 4.7% for 2027. Bank Negara Malaysia (BNM) is one of the few Asian central banks to raise its 2026 growth forecast range, increasing it from 4-4.5% to 4-5%. On inflation, we recently revised upwards our inflation forecast to 2.5% (from 2.1%) for 2026, and to 2.7% (from 2.3%) for 2027. However, we do not believe the price pressures are significant enough to prompt BNM to hike. We keep our long-held view that BNM will likely stay on hold in our forecast horizon throughout 2027. Malaysia has been benefitting handsomely from the sustained AI-driven tech cycle Source: CEIC, HSBC Its petrol subsidy skyrocketed ten-fold to MYR7bn per month after the conflict Source: Malaysia MoF, HSBC Philippines Hanging in there Stagflation appears to be emerging in the Philippines. For one, growth continues to sour. In 1Q26, growth came in at 2.8% y-o-y, stumbling to its slowest pace since 2009, excluding the COVID-19 pandemic. The culprits of the slowdown remain the same: public capital disbursements continue to fall at a significant rate while the uncertainty around public spending has led to households and businesses pulling back on their expenditures. Savings are up, and investment is down. Understandably so – households can weather tough times by putting aside a larger portion of their incomes during good times. That good time was 2025, when wages grew 7% on average while inflation was only 1.7%. However, instead of enjoying the increase in purchasing power by spending more, households chose to save. The share of households reporting that they were able to save before the energy shock in March 2026 was even higher than pre-pandemic levels, with the more vulnerable, low-income households leading the increase. Unfortunately, this slowdown in demand has already spilled over to the labour market. The unemployment rate in the Philippines has risen above 5%. And soon, households and small businesses may need to dip into the savings they have recently accumulated. This is because prices continue to rise amid slow growth. Currently at 6.8% y-o-y, headline inflation in the Philippines is the highest in the ASEAN region. The surge in energy prices has already spilled over into core CPI, with core inflation accelerating above the central bank’s 2-4% target band. However, the outlook is set to become tougher, with price pressures on food − due to higher fertilizer prices and El Niño − expected to intensify in the coming months. We expect growth to come in well below potential in 2026 and 2027, at 3.4% and 4.8%, respectively. But the Philippines is hanging in there. Once the energy shock normalises, financial markets in the Philippines are likely to recover quickly. This is because the fiscal response has remained prudent, as officials opted for targeted welfare measures. In addition, a healthy degree of “demand destruction” should eventually come to the fore. Without controls, energy prices in the Philippines have reflected the true scarcity of commodities. Growth may be below potential, but once the dust settles, public debt and the current account is likely to remain manageable and resilient. With construction demand falling, the labour market has tightened… Source: CEIC, HSBC …all while inflation in the Philippines is rising across all major categories Source: Macrobond, HSBC Singapore Treading with prudence Singapore, a developed market (DM) growing like an emerging market (EM), has demonstrated impressive resilience amid the Middle East conflict. In 1Q26, GDP growth of 6% has placed it as the second-fastest growing economy in ASEAN, just after Vietnam. But beyond the strong y-o-y print, Singapore’s growth momentum was equally strong, reflecting the benefits of a diversified economy. Alas, manufacturing momentum declined in 1Q, but it was more of a healthy pull-down from previous sustained manufacturing strength, supported by the AI-driven tech upcycle. In fact, based on high frequency indicators, the electronics trade remains exceptionally strong. On a three-month moving average basis in April, electronics non-oil domestic exports (NODX) accelerated to over 60% y-o-y, pushing headline NODX close to 15% y-o-y. But it’s not only about AI. Singapore’s resilience comes from its broad-based growth. For one, the construction sector saw growth of over 11% y-o-y in 1Q, reflecting Singapore’s push for large-scale public infrastructure. Meanwhile, the services sector also accelerated on a y-o-y basis, benefitting from robust wholesale and retail trade as well as the finance sector. There is no time for complacency, as downside risks to growth linger, induced by the energy shock. Singapore is in a much better fiscal position than EM peers to provide much-needed relief but it takes a cautious and measured attitude. Overall, given the upside surprise in 1Q26 and the sustained AI cycle, we recently upgraded our growth forecast to 3.3% (from 2.9%) for 2026, putting it at the upper end of the government’s growth forecast range of 2-4%. We forecast 2027 growth of 2.5%. Outside of growth, inflation has been well-behaved, despite the energy shock. Core inflation, the Monetary Authority of Singapore (MAS) preferred inflation gauge, grew only 1.4% y-o-y on average in the first four months of 2026. But the impact from higher oil prices is likely to be more evident from 3Q26, as there is usually a quarter lag from global energy prices to core inflation. Thus, the inflation impact will be more evident in 2H26. We also upgraded our core inflation forecast to 2.0% (from 1.8%) but revised down our headline inflation forecast to 2.2% (from 2.4%) for 2026. No doubt, inflation has re-emerged as a priority for the MAS. Given the current inflation trajectory, the MAS is more likely to take its time to assess the inflation impact, rather than resorting to a back-to-back tightening move in July. Singapore’s electronics non-oil domestic exports (NODX) have seen a jump in growth Source: CEIC, HSBC Singapore’s core inflation momentum has been volatile, but upside risks linger Source: CEIC, HSBC Thailand Policy clockwork Thailand’s economy had some degree of momentum before fuel prices spiked on 23 March 2026, the day the government lifted its price ceilings on fuel. Growth in 1Q26 exceeded expectations, accelerating to 2.8% y-o-y despite the turmoil in the Middle East. Sectors and industries that are part of the data centre and AI supply chains were particularly buoyant. Goods exports from Thailand surged 15.5% y-o-y − the fastest since exports boomed during the COVID-19 lockdowns – with most of the outperformance seen in electronics. Thailand is a major producer of printed circuit boards and hard disk drives, two of the many types of hardware that make up the sophistication of a data centre. Private investment, too, grew by double digits as some of the digital investments committed over the past two years (most being AI-related) finally materialised. Business confidence, especially among large firms, was upbeat as Thailand garnered a renewed sense of political stability after the February 2026 general election. Private consumption also remained punchy with consumers frontloading their automobile purchases ahead of the expiry of the EV 3.0 subsidy scheme. We expect the economy to ride this momentum through fiscal policy. The government has issued a THB400bn loan decree (2.1% of GDP), half of which will be used to finance consumer subsidies. The other half will be used to finance Thailand’s energy transition. Given the size of the stimulus, we have recently revised our 2026 growth forecast to 2.2% (from 1.6%). Will the Thai economy defy the challenges brought by the Middle East conflict? There are cracks that need to be monitored. For one, manufacturers that do not benefit from the ongoing AI boom still face intense competition from Chinese imports. Private consumption should also slow once the consumer subsidies are wound up, while households continue to face liquidity constraints. As a result, businesses have found it difficult to raise the prices of the goods and services they sell despite the jump in input costs. With profit margins squeezed, there is likely to be less incentive to invest later in the year and into the next. Overall, the growth outlook has improved in 2026, but 2027 is likely to remain tough. We recently revised our 2027 growth forecast downwards to 1.7% (from 2.6%). And, given the difficulty in passing higher costs on to consumers, we expect inflation to ease back to below 2% y-o-y as early as 2Q27. Firms have found it difficult to pass the higher cost of inputs on to consumers Source: Macrobond, HSBC We expect fiscal policy to tighten in 2027 after a decade of widening deficits Note: *2026-27 are HSBC forecasts. Source: CEIC, HSBC Vietnam No room for complacency Vietnam entered 2026 on a resilient footing. Despite moderating from last year’s 8%, the country saw rather decent growth of 7.8% y-o-y in 1Q26. This easily made Vietnam sustain its position as one of Asia’s fast-growing economies. However, there is no time for complacency, as the Middle East conflict has pushed up energy prices to elevated levels. Nevertheless, a detailed look at trade data shows Vietnam’s trade resilience. Exports jumped almost 20% y-o-y YTD on average, thanks to booming electronics shipments. While Vietnam’s exposure to chips is rather limited, it has captured more market share in consumer electronics; not to mention that it has the ambition to climb up the value chain, seeing vast potential from its young, knowledge-hungry and tech-savvy workforce. Despite booming exports, Vietnam’s imports grew even more, rising 30% y-o-y YTD. This is also understandable, to an extent, as Vietnam’s manufacturing sector is rather import-intensive. However, this raises a question about its trade balance. Since December 2025, Vietnam has consistently run a trade deficit, which widened to a record level of USD5.2bn in May. We do not think Vietnam will enter a “twin deficit” situation, as the tourism receipts and secondary income will help. However, we have revised down our current account surplus forecast to 2.2% of GDP, from 6% earlier, for 2026. This could pose depreciation pressure on the Vietnamese dong, which has been holding up surprisingly well compared to others since the start of 2026. Overall, we forecast GDP growth of 6.5% for both 2026 and 2027. But downside risks are picking up, and depend on how the Middle East conflict evolves. The immediate concern for Vietnam is how to grapple with elevated oil prices. History reminds us of the acute impact of high oil prices in 2022: high oil prices pushed up Vietnam’s inflation, breaching its 4% ceiling for a little less than six months. Fast forward to today, Vietnam’s inflation rose sharply to 5.6% in May, breaching the State Bank of Vietnam (SBV)’s 4.5% inflation ceiling for the third month running. While the significant jump in petrol prices was the main culprit, it is important not to ignore the recent hike in food prices. Although Vietnam is a rice exporter, its domestic rice prices are typically influenced by international prices. Overall, we recently revised up our inflation forecast to 5.2% (from 4.6%) for 2026. Vietnam has consistently seen a trade deficit since the start of 2026 Source: CEIC, HSBC Vietnam’s inflation has breached the central bank’s 4.5% target since March Source: CEIC, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/asean-in-focus/pushing-ahead/

2026-06-18 12:01

Key takeaways In his first meeting as Fed chair, Kevin Warsh unveiled a shorter policy statement with less forward guidance on rates. Policy rates were unchanged in June, but a more divided, inflation focused FOMC prompted a hawkish market reaction. For now, the USD is likely to remain supported, and we have likely already seen the low in the USD for 2026. In his first meeting as the Federal Reserve (Fed) Chair, Kevin Warsh announced that US policy rates were left unchanged at 3.50-3.75% at the 16-17 June meeting, as widely expected. The accompanying statement was notably shorter, with an apparent emphasis on the price stability element of the dual mandate, and no retention of a bias to ease. The updated plot contained 18 projections, with Fed Chair Warsh confirming he did not add his own. Nine Federal Open Market Committee (FOMC) members see at least one hike as likely in 2026, while nine expect unchanged or lower rates, underscoring a more divided FOMC. The median projection for 2026 GDP was revised down, while inflation projections were revised notably higher. Together, this suggests a hawkish shift in views among FOMC policymakers was even more broad-based than markets had anticipated, reflecting inflation concerns. The USD strengthened, with the US Dollar Index (DXY) surpassing 100. Source: Federal Reserve Fed Chair Warsh also announced the formation of a task force to assess potential changes to Fed communications, alongside four additional task forces on other topics. He indicated work would begin “in the next couple of weeks”, with most – if not all − task forces expected to reach conclusions by year-end. Our economists’ view is that the FOMC will hold the federal funds target range steady through 2026 and 2027. In contrast, markets are fully pricing in a 25bp hike, with a 50% chance of a second 25bp hike, by end-2026 (Bloomberg, 18 June 2026). Overall, the June meeting points to a more divided FOMC than markets had anticipated, and the USD has benefited accordingly. While Fed Chair Warsh did not provide forward guidance, his press conference also offered little to suggest he will be a consistently dovish voice on the Committee. For now, rates and FX markets appear to be leaning towards the hawkish cohort, implying the USD is likely to remain supported and that we may already have seen the 2026 low in the DXY. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-stronger-amid-a-divided-fed-in-june/