HSBC China Wealth Insights: Optimistic Outlook Amidst Changes, Four Major Investment Themes | HSBC Q2 Wealth Insights (Special Topic 1)

Under Changing Circumstances, Market Outlook Remains Optimistic

After experiencing a first quarter full of uncertainties, we need to reflect on market changes and make corresponding arrangements for the second quarter. So far, our multi-asset strategy has effectively responded to the rapidly changing market environment, and we will continue to use it as our core allocation strategy.

Recent conditions reflect that financial markets remain highly volatile and may change dramatically without warning. Market concerns persist, from the widening fiscal deficit and the impact of artificial intelligence on software companies to new tariff measures in the U.S., controversies surrounding the appointment of the new Federal Reserve chair, and recent geopolitical conflicts in the Middle East.

What does this mean for investors?

Although these topics attract significant market attention, we believe there are both positive and negative aspects to the current situation. Historical data indicates that conflicts in the Middle East may lead to short-term market volatility, but unless there is an ensuing economic recession or the Federal Reserve is forced to shift towards raising interest rates, it may not trigger a long-term market adjustment. We believe the likelihood of these risks materializing is low.

Regarding the recent sell-off in the technology sector and the trend of funds rapidly rotating from tech stocks to other sectors, we believe the market’s reaction is somewhat exaggerated but not entirely negative. Investors are diversifying their portfolios to reduce the risk of excessive concentration, while the valuations of tech stocks have adjusted to more reasonable levels. Notably, despite the poor performance of tech stocks, their earnings continue to exceed expectations.

Despite ongoing uncertainty, global markets still hold plenty of opportunities. The U.S. economy is benefiting from fiscal spending, artificial intelligence, and infrastructure investments related to energy, and the expected trend of onshoring production lines indicates it will remain resilient.

Globally, inflation is under control, corporate (especially U.S. corporate) profit margins are near historical highs, and the cyclical outlook remains relatively robust. The earnings growth momentum across various U.S. sectors is strong, while the profit growth rate of Asian companies is even faster, with European companies also benefiting from advancements in artificial intelligence applications. Healthy earnings help companies better absorb the impacts of rising oil prices without leading to overly severe issues.

Building a Resilient Portfolio

One thing is very clear: traditional stock and bond investment allocations are no longer sufficient to address the multiple risks and dynamics of today’s market.

While there are still many questions about artificial intelligence, this wave will continue to drive profit growth gradually across multiple industries, including industrials, materials, and utilities. The key is that investment strategies should not overly concentrate on individual tech leaders, especially the “FANG” stocks, but adopt a broader market allocation strategy, combining yield strategies to achieve relatively stable potential returns while enhancing diversification through gold and alternative assets.

In terms of geographic allocation strategy, we remain optimistic about the U.S. market while gradually increasing our exposure to the Asian market. Asian valuations are highly attractive and offer diversified investment opportunities at the stock level, as well as structural growth drivers and an innovative ecosystem. As investors reduce their excessive concentration in U.S. assets, some emerging markets may outperform the broader market.

Staying Steady Amid Uncertainty

In the face of rapid market changes, we believe we should not be swayed by overly pessimistic or optimistic views. As we write this, the conflict in Iran continues, and the market has experienced intense fluctuations. Maintaining calm and diversifying allocations, combined with our carefully designed four investment themes, may capture potential cyclical and structural opportunities and help mitigate market risks.

In this issue, we invite Cathie Wood, founder, CEO, and Chief Investment Officer of ARK Invest, for a dialogue to discuss the development outlook of disruptive technologies; simultaneously, another featured article focuses on analyzing how to enhance portfolio resilience by uncovering emerging investment trends.

We hope the insights and investment themes above will help you confidently deploy suitable investment strategies in the coming months.

Four Investment Themes

Helping You Build Your Portfolio

Despite the recent sell-off in the technology sector, U.S. companies are still expected to show strong earnings growth in the fourth quarter of 2025, reflecting the ongoing increase in artificial intelligence applications, growth in software demand, and rising profit margins. We anticipate this growth momentum will continue, led by the tech and cyclical sectors; valuations of tech stocks have become more reasonable.

We believe that with strong capital expenditure support, artificial intelligence will continue to be a key driver of profit growth and efficiency improvements across various industries and regions. Software companies play a critical role in data management and workflow integration, making them difficult to replace by artificial intelligence within the ecosystem.

The cyclical outlook is also quite optimistic, driven by trends in artificial intelligence development, sustained high levels of investment spending, and fiscal support. This expands investment opportunities in the industrial sector, which continues to benefit from fiscal spending and capital investment, and brings positive spillover effects to materials industries related to infrastructure.

Utilities also benefit from the growth in electricity demand—not just in the U.S., but also in parts of Asia and Europe. We adopt a prudent and broad allocation strategy, which helps reduce concentration risk in the U.S. and the tech sector.

• We maintain a favorable view on global and U.S. equities, covering information technology, communication services, financials, industrials, materials, and utilities. Given the geopolitical tensions in the Middle East heightening risks to oil supply, we have upgraded our view on global energy stocks to neutral.

• In Europe, we prefer communication services, financials, industrials, materials, and utilities. In Asia, we are optimistic about investment opportunities in information technology, communication services, consumer discretionary, financials, materials, and healthcare sectors.

In the context of a continually changing financial and geopolitical environment, stable income is crucial, as it is a source of returns and helps reduce volatility in the portfolio. Therefore, bonds remain a key component of the investment portfolio, regardless of market conditions.

Currently, inflation in most developed markets is largely under control, and we also believe that the impact of skyrocketing oil prices may be temporary. The interest rate-cutting cycles of most central banks are nearing their end, allowing us to focus on finding higher-value opportunities across the bond market.

The recent ruling by the U.S. Supreme Court regarding U.S. trade tariffs is not expected to have a significant impact on bond yields. However, the high fiscal deficit in the U.S. may limit the downside potential for yields. In contrast, we believe the outlook for the UK and certain emerging markets in this regard is more favorable.

In terms of corporate credit, we prefer investment-grade bonds and emerging market bonds over high-yield bonds, as the latter’s credit spreads remain relatively narrow. We favor fundamentally sound emerging market bonds and quality bonds that can provide attractive yields. An active bond management strategy allows us to flexibly seize duration opportunities and capture potential returns from market volatility.

• Among developed market government bonds, we are more optimistic about UK gilts and Australian government bonds, as well as emerging market local currency sovereign bonds that have lower correlation with risk assets.

• We prefer medium to long-duration investment-grade bonds in euros and pounds, and we continue to favor medium-duration high-quality dollar bonds.

Recent market fluctuations have been driven by multiple factors, including concerns about an artificial intelligence bubble, trade tariffs, controversies regarding Federal Reserve independence, geopolitical conflicts in the Middle East, and risks of U.S. dollar depreciation. Investors are seeking more sustainable solutions to help them maintain stability amid market volatility, while also not missing out on broader potential opportunities.

A multi-asset strategy, which is not limited to stocks and bonds, helps investors achieve diversified allocations across asset classes, sectors, markets, and currencies. We add gold and alternative assets with lower correlation to traditional assets in our asset allocation, further enhancing diversification benefits. Supported by geopolitical uncertainty and strong demand from central banks, we expect gold prices to remain high in the first half of the year. Hedge funds help identify true winners and losers in the field of artificial intelligence, while rapid innovation also means that potential opportunities for investing in unlisted companies in the private market are improving.

The continuously rising scale of U.S. borrowing and policy shifts may prompt ongoing diversification of funds, reducing allocations to U.S. assets. Given that the dollar is likely to continue fluctuating, a global multi-asset investment portfolio helps investors access multiple currencies to lower the risk of excessive concentration.

• We achieve diversified allocations through a multi-asset strategy, including a diversified layout across different currency markets.

• Gold and alternative assets are becoming increasingly important for deepening diversification in a rapidly changing market environment.

As investors seek to diversify away from an overly concentrated U.S. market portfolio, Asia is well-positioned to become their preferred target—it boasts vibrant growth momentum, strong domestic demand, favorable technology innovation policies, and attractive valuations.

The region is home to many leading companies in artificial intelligence and technology, semiconductor manufacturers, and e-commerce giants. With the ongoing global trend of artificial intelligence and the support of government policies and fiscal spending, growth momentum is accelerating.

Mainland China is at the forefront of the artificial intelligence competition, and innovation has been established as a key growth driver in the “14th Five-Year Plan.” Meanwhile, merger and acquisition activities in Hong Kong are rebounding, with strong southbound capital inflows recorded through the “Shanghai-Shenzhen-Hong Kong Stock Connect.” Reforms in corporate governance in Japan and South Korea are also helping companies enhance dividends and share buybacks.

Outside Asia, some emerging markets are also exhibiting better-than-market performance, mainly due to their attractive valuations, increasingly refined growth engines, and policy support.

• Our “barbell strategy” balances capturing growth opportunities while obtaining substantial dividend income from quality companies and attractive bond yields from the region.

• We are optimistic about stocks in Mainland China, Hong Kong, Singapore, South Korea, and Japan. In terms of investment-grade credit, we prefer bonds from Asian financial institutions, major currency bonds in China, and local currency bonds in India.

Key Economic Data

Asia’s innovation, strong earnings momentum, and diversified opportunities make it a major growth region

Source: HSBC Global Investment Research, data as of March 5, 2026; estimates and forecast data may vary. India’s inflation forecast is based on the fiscal year.

Global markets are expected to maintain robust earnings growth this year and next, with the U.S. and Asian markets leading the way

Source: Bloomberg, HSBC Private Banking and Wealth Management, as of March 12, 2026. Forecast data may vary. MSCI: Morgan Stanley Capital International

Geopolitical uncertainty and strong purchasing momentum from central banks may keep gold prices high in the first half of the year

Source: Bloomberg, HSBC Private Banking and Wealth Management, as of March 1, 2026. Past performance is not indicative of future returns.

Asia offers resilient potential opportunities for achieving higher total returns

Source: Bloomberg, HSBC Private Banking and Wealth Management, as of March 5, 2026. Past performance is not indicative of future returns. MSCI: Morgan Stanley Capital International

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Risk Disclaimer and Exclusion Clause

        Markets are risky; investment should be approached with caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at your own risk.