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Investment Monthly

Testing the boom

10 August 2026

Articles

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Key Takeaways:

House View

Strong corporate profits should still support global equity performance, though concerns over the durability of massive AI capex, persistent geopolitical risks and supply shocks could drive episodic volatility
There has been significant volatility in emerging markets with big exposure to AI-related hardware. But country-level idiosyncrasies mean a broad EM allocation in portfolios can still provide diversification benefits
Higher government bond yields provide better scope to hedge against downside risks. But in a “multi-polar” world with spikeflation risks it still makes sense to “diversify the diversifiers”. Investors should also consider “anti-bubble” parts of the market which may hold up better in sell-offs

Macro Outlook

Renewed hostilities in the Middle East have again depressed traffic through the Strait of Hormuz. If sustained, resurgent oil prices imply inflation will remain sticky even if growth moderates
US domestic demand is robust but K-shaped. AI is driving strength in some areas of investment and supporting spending by wealthier consumers. But household income growth has been weak, and the saving rate is very low. Surveys are consistent with soft European growth
AI and policy buffers have supported Asia’s growth, but it is exposed to the risk of global AI demand shifts and energy supply shocks. China’s growth is resilient amid technology and export strength, but imbalanced

Policy Outlook

Policy uncertainty remains elevated. Supply-side shocks create difficult growth-inflation trade-offs for central banks. Fiscal and industrial policy is more interventionist, but constrained by elevated government debt
Federal Reserve Chair Warsh reiterated his commitment to price stability but gave little guidance on policy. The trajectory of energy prices could be pivotal for monetary policy. The ECB is open to delivering another hike, while the bar for BoE policy tightening appears to have risen
China’s policy support remains focused on balancing short-term macro stability with longer-term structural priorities. In Asia, relative exposure to AI and the energy shock is driving a varied pace and scale of policy support

Scenarios

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House View

Concerns around tech spending, profit margins, or competition from lower-cost AI models could trigger further market wobbles. Investors should focus on building portfolio resilience via “diversifying the diversifiers”. Laggard parts of the market may hold up better in a sell-off, for example in Europe and Asia

Equities – Strong capex should keep AI-related profits flowing, but market performance can broaden out. Other sectors adjacent to the AI boom, both upstream and downstream, could be the next market leaders
Government bonds – Yields remain elevated amid spiky inflation, geopolitical risks, and a hawkish pivot by central banks. But this has improved the income opportunities across fixed income, which could add ballast to portfolio returns
Corporate bonds – Investment grade credit spreads remain tight amid robust fundamentals. High yield credit faces pressure from uneven US growth and geopolitics. We maintain a preference for higher quality

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Asset class performance at a glance

After driving year-to-date equity market returns, technology stocks turned volatile on worries over the durability of AI-related capex. Concerns about spiky inflation, elevated oil prices, and the potential for central bank tightening pushed sovereign yields higher. The US dollar index closed the month lower

Government bonds – Major sovereign yields broadly climbed, with the US Treasury yield curve steepening notably, as the rebound in oil prices fuelled concerns about more persistent inflationary pressures
Equities – Global equity returns were mixed in July. Tech sector volatility weighed on the US market, while European indices largely recorded decent gains. Some previously lagging Asian markets outperformed, and there was a rebound in Latam
Alternatives – Oil prices rallied on rising geopolitical tensions and supply disruption fears. Gold edged higher following weakness earlier this year, with copper prices also strengthening. Real estate and infrastructure indices saw positive moves

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The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management. Consequently, HSBC Asset Management will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document. Past performance does not predict future returns. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. The views expressed above were held at the time of preparation and are subject to change without notice. The level of yield is not guaranteed and may rise or fall in the future. Source: Bloomberg, all data above as at close of business 31 July 2026 in USD, total return, month-to-date terms. Note: Asset class performance is represented by different indices. Global Equities: MSCI ACWI Net Total Return USD Index. Global Emerging Market Equities: MSCI Emerging Market Net Total Return USD Index. Corporate Bonds: Bloomberg Barclays Global HY Total Return Index value unhedged. Bloomberg Barclays Global IG Total Return Index unhedged. Government bonds: Bloomberg Barclays Global Aggregate Treasuries Total Return Index. JP Morgan EMBI Global Total Return local currency. Commodities and real estate: Gold Spot $/OZ, Other commodities: S&P GSCI Total Return CME. Real Estate: FTSE EPRA/NAREIT Global Index TR USD. Crypto: Bloomberg Galaxy Crypto Index. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index.

Macro scenarios

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Market scenarios

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Economic outlook

A divided Fed, ECB on track for another hike

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Events calendar 2026: six-month forward looking

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Investment Views

Asset class positioning

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Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. Diversification does not ensure a profit or protect against loss. The views expressed above were held at the time of preparation and are subject to change without notice. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: HSBC Asset Management as at August 2026.

On Top of Investors’ Minds

How can investors access the AI theme while trying to minimise volatility?

As the generative AI boom matures, concentration in US mega-cap tech and rising scrutiny over massive capital expenditures have heightened market volatility. High capex is beginning to drag on actual cash flows, while established AI platforms face pricing pressure from emerging lower-cost AI models. However, staying on the sidelines risks missing out on a multi-year structural trend. Participating in the AI trade while dampening downside risk requires a broader, more defensive allocation strategy.

First, investors can look toward tech-adjacent sectors. Massive capital spending on AI infrastructure directly benefits upstream and downstream industries—such as power utilities, energy infrastructure, and industrials—which capture structural growth without facing margin erosion. These are also sectors which offer lower valuations versus tech.

Second, consider discounted AI markets. In China, domestic tech players and lower-cost AI model breakthroughs provide exposure to the broader technology theme at significantly lower valuations than crowded US mega-caps.

Finally, private markets offer a compelling way to capture value away from public market turbulence. Much of the steep growth curve in AI innovation occurs pre-IPO.

US tech sector: cash versus reported PE ratios

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Where can investors find valuation opportunities outside crowded mega-cap trades?

In recent years, US mega-caps have been a significant driver of global market gains. This has created deep valuation gaps with "anti-bubble" regions – markets trading at historical P/E discounts relative to the US. While South Korea and Taiwan have recently surged, their heavy tech exposure and high volatility makes them look riskier than before. But they still offer relative value and can perform as long as the US hyperscaler capex boom continues.

China and India stand out as the true "sleeping giants" of emerging markets. Having lagged the initial AI rally, China offers discounted valuations backed by policy support, while India provides strong structural earnings growth. Both regions appear well-positioned to benefit as market performance broadens beyond narrow tech trades.

Developed markets outside the US also offer strong potential. In Europe, a two-year corporate profits drought has ended, setting the stage for solid earnings growth alongside attractive dividend yields. Furthermore, defensive allocations in frontier markets provide low-correlation diversification against broader market swings. By looking past crowded US trades toward these neglected anti-bubble assets, investors can capture resilient, diversified income and growth across global markets.

Regional PE ratio gap versus US (MSCI)

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How should portfolios adapt to persistent macro volatility and hawkish central banks?

Central banks remain cautious as sticky core inflation, expansionary fiscal policies, and persistent geopolitical friction complicate the global macroeconomic outlook. With central bank guidance shifting toward strict data dependence, markets face ongoing interest rate volatility. In this environment, relying solely on traditional equity-bond allocations leaves portfolios vulnerable.

To navigate this regime, investors need to "diversify the diversifiers". While long-duration bonds face pressure from elevated public debt, shorter-duration debt offers a practical way to capture yield with reduced interest rate sensitivity.

Across global markets, diverse income opportunities can provide essential portfolio ballast. Investors should look toward real assets like infrastructure, selective private credit, and dividend-focused equity strategies to build resilience.

Meanwhile, Asian equities offer compelling income potential driven by improving corporate governance, special dividends, and share buybacks. Finally, alternative investments—such as multi-strategy hedge funds and specialised floating-rate loans (CLOs)—provide attractive yields and act as shock absorbers during rate fluctuations. They also have a track record of performing well in the long run.

Performance of hedge funds versus major asset classes and 60/40

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Market Data

June 2026

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Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index.
Sources: Bloomberg, HSBC Asset Management. Data as at close of business 31 July 2026. (*) Indices expressed as total returns. All others are price returns.

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All total returns quoted in USD terms.
Data sourced from MSCI AC World Total Return Index, MSCI USA Total Return Index, MSCI AC Europe Total Return Index, MSCI AC Asia Pacific ex Japan Total Return Index, MSCI Japan Total Return Index, MSCI Latam Total Return Index and MSCI Emerging Markets Total Return Index.

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Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. This information shouldn’t be considered as a recommendation to invest in the country or sector shown. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Sources: Bloomberg, HSBC Asset Management. Data as at close of business 31 July 2026.

Important Information

Basis of Views and Definitions of 'Asset class positioning' tables

Views are based on regional HSBC Asset Management Asset Allocation meetings held throughout June 2026, HSBC Asset Management’s long-term expected return forecasts which were generated as at 31 May 2026, our portfolio optimisation process and actual portfolio positions
Icons: ↑ View on this asset class has been upgraded – No change ↓ View on this asset class has been downgraded
Underweight, overweight and neutral classifications are the high-level asset allocations tilts applied in diversified, typically multi-asset portfolios, which reflect a combination of our long-term valuation signals, our shorter-term cyclical views and actual positioning in portfolios. The views are expressed with reference to global portfolios. However, individual portfolio positions may vary according to mandate, benchmark, risk profile and the availability and riskiness of individual asset classes in different regions
"Overweight" implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class
"Underweight" implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would) have a negative tilt towards the asset class
"Neutral" implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class
For global investment-grade corporate bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, USD investment-grade corporate bonds and EUR and GBP investment-grade corporate bonds are determined relative to the global investment-grade corporate bond universe
For Asia ex Japan equities, the underweight, overweight and neutral categories for the region at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, individual country views are determined relative to the Asia ex Japan equities universe as of 31 May 2026
Similarly, for EM government bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, EM Asian Fixed income views are determined relative to the EM government bonds (hard currency) universe as of 30 June 2026

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. Diversification does not ensure a profit or protect against loss. You cannot invest directly in an index.

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The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. The performance figures contained in this document relate to past performance, which should not be seen as an indication of future returns. Future returns will depend, inter alia, on market conditions, investment manager's skill, risk level and fees. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade.

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