Investment Weekly: A hawkish pivot
15 June 2026
Key takeaways
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Growing resilience has been a standout feature of emerging markets recently – and it’s showing up in an improving ratings outlook for EM sovereign bonds.
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Investment strategies with a market-cap weighting have been well-placed to benefit from the recent surge in mega-cap tech stocks. Yet the high index concentration of tech giants has sparked concern about portfolios that might look diversified but are really just large “macro” and “style” bets.
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Investors are increasingly asking _when_ the enormous spending on AI infrastructure – including chips, data centres, and computing power – will generate durable economic returns. While AI adoption is spreading across industries, the payoff may lag the investment cycle for some time yet.
Chart of the week – A hawkish pivot
The global economy is currently being shaped by what we call “two shocks and a boom”. The first shock is inflationary: the Middle East conflict has pushed oil prices higher and impeded the supply of some commodities. The second is mildly disinflationary: “China shock 2.0”, driven by China’s surging tech and green energy exports, which are increasing global supply. The “boom” is the surge in US AI-related investment, supporting demand and activity. These forces are creating a difficult environment for central banks and have, so far, driven a hawkish pivot. The ECB’s rate rise, despite slowing growth, is intended to reduce the risk that the energy shock lifts medium-term inflation expectations. This week, three other major central banks will decide whether to stick or twist. The Bank of Japan looks likely to hike, given its still-negative real policy rate. The Bank of England is expected to stay on hold while it monitors a weakening labour market, but it may need to hike later this year to rebuild inflation credibility. The backdrop also makes for a challenging first meeting for the new Federal Reserve Chair, Kevin Warsh. The Fed is widely expected to keep rates unchanged and to remove any bias towards easing this year from its statement and projections. The key question is whether it validates market expectations for further tightening. Overall, spikier inflation and a rise in hawkish central bank thinking reinforce the complicated macro landscape. While episodic volatility is a risk, supernormal profits and a manageable cost of capital mean that markets can continue performing well through the rest of 2026. |
Market Spotlight
Riding the IPO wave
A wave of blockbuster stock market listings (IPOs) is dominating investor attention. But is it good news for markets?
While bumper periods of IPO activity are often hailed as evidence of innovation, growth, and strong investor appetite, academic research offers a more nuanced view: IPO booms have historically coincided with some of the most optimistic phases of the market cycle. Just take the late-1990s technology bubble, which was a classic “hot issue market” that witnessed a rash of new flotations but ultimately ended in a crash.
The bull case is simple: strong IPO markets tend to coincide with healthy economic conditions, abundant liquidity, and investors’ willingness to fund growth. But the cautionary case is also compelling. Research shows that firms tend to issue equity when valuations are attractive from the issuer‘s perspective. That means IPO waves, bumper share issuance, and investor enthusiasm might initially drive strong gains, but longer-term returns can disappoint.
Historically, periods of heavy issuance have been less a signal of future gains than a reflection of already rich valuations. For investors, the lesson is to be selective. When issuance surges, discipline on valuation becomes even more important.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. The level of yield is not guaranteed and may rise or fall in the future. 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. Diversification does not ensure a profit or protect against loss. Any views expressed 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 is not guaranteed in any way. 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, Factset, Bloomberg, Macrobond. Data as at 7.30am UK time 12 June 2026.
Lens on…
Rating the resilience
Growing resilience has been a standout feature of emerging markets recently – and it’s showing up in an improving ratings outlook for EM sovereign bonds. Positive ratings have outnumbered negative ones since early 2023, and the balance has improved this year, despite supply shocks. That partly reflects improving fiscal and external positions in several larger EM economies. South Africa, Peru, and Chile, for example, have benefitted from supportive metal prices, which have partly offset higher energy costs. More broadly, many EM sovereigns entered this period of volatility with stronger policy frameworks and more credible fiscal management than in previous cycles. The trend is also visible in frontier sovereigns. Several countries that faced acute stress following the 2022 commodity shock have since restructured debt, secured IMF programmes, or strengthened external financing buffers. Pakistan and Egypt, for instance, have attracted additional funding and rebuilt reserve positions. |
While higher oil prices pose a challenge, especially for importers, balance sheet resilience and positive ratings momentum support the overall case for selective exposure to EM sovereign bonds.
A matter of factor
Investment strategies with a market-cap weighting have been well-placed to benefit from the recent surge in mega-cap tech stocks. Yet the high index concentration of tech giants has sparked concern about portfolios that might look diversified but are really just large “macro” and “style” bets. One solution to this diversification headache is to take a more active approach – but the dilemma is how to achieve resilience without hurting performance. Quantitative multi-factor strategies could be an answer. They work by weighting to ‘factors’ like quality, value, momentum, size, and low risk. This makes them responsive to changing market trends and helps avoid unintended macro and style biases. Strong technology performance has helped drive the momentum factor recently. But when market leadership broadened out in early 2026, factor strategies benefitted from the rotation in performance towards value. |
That strong recent performance and the appeal of diversifying beyond crowded trades have driven demand for quant strategies. If broadening out resumes this year, they could be well-placed to benefit.
Return on intelligence
Investors are increasingly asking when the enormous spending on AI infrastructure – including chips, data centres, and computing power – will generate durable economic returns. While AI adoption is spreading across industries, the payoff may lag the investment cycle for some time yet. In the near term, AI-related capex is boosting demand for energy, hardware, and specialised labour, creating inflationary pressure. But as AI matures, cheaper production and higher productivity could have a widely beneficial disinflationary effect – a component of an upside scenario. Who benefits the most from AI-driven efficiencies? Firms with strong pricing power could see profit margins grow, while those in competitive markets may end up having to pass savings on to customers. |
In the longer term, as AI becomes more widely available, market leadership could broaden as it is adopted by more traditional industries, and in emerging markets, where signs of already strong AI demand could translate into a tailwind for assets.
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. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, Factset, Moody's, S&P, Fitch. Data as at 7.30am UK time 12 June 2026.
Key Events and Data Releases
Last week
This week ahead
For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed 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 is not guaranteed in any way. 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. Data as at 7.30am UK time 12 June 2026.
Market review
While risk assets saw further volatility, hopes of geopolitical de-escalation supported performance last week. Sovereign yields broadly retreated as oil prices pulled back. US Treasuries bull-steepened, with 10-year yields falling below 4.5%, as inflation data came in slightly softer than expected. In equities, the S&P 500 and Nasdaq recovered from early losses, alongside more notable gains in the small-cap Russell 2000 and the Philly semiconductor index. In Europe, the Stoxx 50 held firm after the ECB’s 0.25% rate hike. In Asia, stock markets lacked clear direction: the Nikkei 225 traded sideways, while the Kospi rebounded modestly in volatile trading after tech sell-offs. The JCI surged following the central bank’s off-cycle rate hike. In FX, major currencies traded mixed against the USD, as the dollar index hit a 10-week high earlier.
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