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【HSBC Market Information】Lockdown

Summary

Macro Outlook

  • Governments have imposed hugely restrictive measures to suppress COVID-19. Economic activity has fallen at a precipitous pace
  • March activity data across developed markets fell at an alarming rate. Early data for April show further, pronounced weakness
  • Q2 is likely to see double-digit declines in GDP (not annualised) across developed economies. Consensus growth forecasts for 2020 continue to look too optimistic at this stage
  • China’s economy contracted by 9.8% q/q in Q1. Domestic activity is now recovering as the government eases restrictions, but the economy continues to face severe external headwinds
  • The path for the global economy through 2020 is highly dependent on governments’ willingness to ease virus-suppression policies

Key Views

  • Investment markets have rebounded as a slowdown in the number of new COVID-19 cases has created the perception that the virus is “under control”
  • Risk appetite has also been boosted by aggressive policy actions from central banks and governments around the world, which reduce the probability of very bad outcomes. Nevertheless, economic activity and corporate profitability has fallen sharply, and it is expected they deteriorate further
  • Meanwhile, in our view relative valuations for risky asset classes continue to look attractive. Global equities and high yield bonds seem to us to be good places to deploy risk
  • Exposure to emerging market (EM) asset classes could become a bit tricky from here. Relative valuations versus developed markets (DMs) have narrowed and EM economies face many challenges to manage the health and economic crises. The bright spot is Asia as it can benefit form a growth recovery in China

This article was presented to you by HSBC.