Investment Monthly: Reduced trade tensions lift optimism for US stocks

Key takeaways

The quick US-China agreement and the US-UK trade deal have substantially reduced downside risks. As earnings growth expectations have been lowered and valuations are more fairly valued, we think the rotation away from US assets will ease. Coupled with AI-led innovation and other structural opportunities, we move global and US equities, as well as Technology, back to overweight while cutting Europe ex-UK equities to neutral. We continue to stay diversified through multi-asset strategies and gold to manage downside risks.

The correlation between stocks and bonds has fallen back into negative territory, reinforcing the diversification benefits of bonds. We prefer UK gilts due to their attractive real yields, and GBP/EUR investment grade credit. We expect the Fed to cut rates three more times this year, while the Bank of England is signalling more rate cuts than the market expects.

Despite a less daunting tariff outlook, we expect the upcoming trade talks between the US and China to be lengthy and Chinese policymakers to continue ramping up policy support to boost local demand. We remain overweight on Chinese equities with a focus on AI enablers and adopters across industries and expect the market rally to broaden out to the consumption, financial and industrial sectors. Both India and Singapore stand out as relative trade safe havens.

https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/reduced-trade-tensions-lift-optimism-for-us-stocks/

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Publish Date: Wed, 21 May 2025, 12:01 PM

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