Investment Monthly: Balancing energy-driven volatility and longer-term opportunities

Key takeaways

Recent energy price spikes have increased inflation expectations and market volatility. While we believe the impact should be temporary, we downgrade Consumer Discretionary in Asia and globally, following our reduced exposure to oil-importing markets such as India, to reflect higher inflationary pressures. Inflation concerns are likely to prompt policymakers to delay easing. We continue to seek attractive yields in investment grade and EM local currency debt and use gold and alternative assets to enhance diversification.

As an energy exporter, US resilience stands out and continues to be supported by technology and AI-related investment, contributing to strong earnings growth across Communications, Industrials and Materials. Fed easing, M&A activity and a recovery in capital markets are positive factors for Financials. While we continue to favour US equities and USD investment grade credit, we emphasise the importance of diversification to reduce concentration risk.

The outlook for Asia is mixed. India and some emerging markets are sensitive to oil prices, while South Korea benefits from AI-driven growth, and energy reserves provide an added advantage to China. In Japan, fiscal expansion, wage growth and corporate governance reforms should help offset higher energy costs. As only a limited portion of Europe’s energy supply is sourced from the Middle East, the risk of severe disruption is reduced, though growth expectations have moderated but opportunities remain in the materials, industrials, communications, financials and utilities sectors.

https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/balancing-energy-driven-volatility-and-longer-term-opportunities/

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