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WHERE HSBC STRATEGISTS COULD BE WRONG NEXT YEAR

HSBC multi-asset strategists have a note out on Tuesday, looking at what they could be getting wrong in their forecasts.

As these predictions, in broad terms, aren't a million miles from the consensus, it's worth taking a look, as the same things could disrupt everyone's planning.

HSBC expect a powerful rally in risk assets next year and as a result are most overweight equities, as well as high-yield credit, EM debt and gold.

The first thing they flag that could disrupt this is a more hawkish Fed. Markets are currently pricing around three 25-bp Fed rate cuts by year-end, a sharp decline in recent months. But should the Fed cut by less, they say this could see bond yields elevated and financial conditions tighten, which would mean less support for risk assets.

That could also have knock-on effects, as expansionary fiscal policies from the incoming Trump administration could add to inflation dynamics, further complicating things for the Fed.

Also in the mix for inflation is the result of tariffs, one of the most talked-about topics at present.

Then there's U.S. growth, which has significantly beaten expectations in the past couple of years. Now estimates are no longer so subdued, and so, say HSBC: "given that the bar to beat is much higher now, positive surprises are likely to be harder to come by, ... This leaves a risk that growth concerns could make a comeback."

The last thing they flag is that the AI trade fizzles out. After all, a lot of the global equity market rally this year has been driven by U.S. tech stocks. Should AI excitement turn out to be a bubble, this would not be good for equity markets, in the U.S. or anywhere else.

(Alun John)

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