HSBC analysts believe that global equity markets will see a 15% increase by the end of 2024.
“With global inflation edging lower, many central banks should begin easing monetary policy next year. In our view, this will be a powerful catalyst for equities,” the analysts wrote in a client note.
However, HSBC also expects market breadth to narrow due to slowing economic growth and declining interest rates. This means that a significant portion of the market may experience limited gains, while the United States is expected to maintain its dominant position.
“Risks appear better priced after the recent pullback in equity markets,” the analysts added.
The banking giant has an overweight position on the U.S. and emerging markets, an underweight position on the UK, Europe (excluding the UK), and Japan.
The analysts highlight that the S&P 500 had rallied 22% on average “between when the Fed
first paused hikes and 6m after the Fed started cutting.”
“The AI theme will likely drive a winner-takes-all mentality with the early adopters capturing significant market share,” the analysts wrote.
HSBC has also made several updates to its sector allocations. It upgraded Industrials and Consumer Staples to overweight from their previous neutral rating.
Health Care has been upgraded to a neutral rating from underweight. On the other hand, Energy and Financials have been downgraded to a neutral rating from overweight, and Basic Materials has been downgraded to underweight from neutral.
Technology and Consumer Discretionary remain core sector overweights.
“We believe the AI theme will remain an important catalyst that will help the Tech sector outperform, particularly as we see better monetization efforts over the next few quarters,” the analysts concluded.