As a separate story of structural development in the emerging markets, HSBC values Greece, along with India, Indonesia, Romania and Mexico, maintaining an overweight position both for the economic course of the country and for the Greek stocks, in a report with the its predictions for the course of stocks on a global scale in 2024.
More specifically, as the British bank reports, with global inflation easing, many central banks will begin to ease their monetary policy next year.
In HSBC’s view, this should be a strong catalyst for the shares. Analyst consensus is raising GDP estimates globally as a result of the surprising resilience shown by macroeconomic data. The “peak” interest rates prevailing at the moment would logically provide room for bond yields to move lower, supporting valuations. In previous Fed turns on monetary policy, where the central bank had planned a soft landing, the S&P 500 had risen an average of 22% between the Fed’s first pause in hikes and 6% after the Fed began tapering interest rates.
Although economic growth will likely slow next year, HSBC believes much of that slowdown has already been priced in. Consensus estimates for 2024 are already low (forecast <1% GDP growth in 2024 for the US). Slowing growth and peaking interest rates also logically favor growth relative to value and, in the bank's view, will keep US mega-cap tech giants outperforming, further increasing market concentration. The field of Artificial Intelligence will likely lead to a "winner takes it all" mentality, with pioneers capturing significant market share.
Key risks in the UK bank’s view include a longer-term higher interest rate environment, increased geopolitical uncertainty, as well as “noise” around the US election and a larger-than-expected slowdown in the Chinese economy.
HSBC expects earnings to grow 7% in 2024 (slightly below consensus of 11%). The US and emerging markets remain the bank’s overweight regions, with the two markets likely to provide the most resilient earnings estimates.
For the US, HSBC expects the tech giants to drive the market higher. He also sees potential upside for margin estimates from falling inflation, supply chain normalization, cost-cutting efforts and artificial intelligence/automation.
In emerging markets, he sees opportunities, particularly outside of China, as the region’s central banks lead the shift in monetary policy, helping to ease monetary conditions and provide support to economic activity. Latin America is currently HSBC’s preferred sub-region within emerging markets, with high real interest rates providing a cushion against currency exchange pressures. In contrast, the bank’s analysts remain underweight on the UK, Europe and Japan. The UK looks like a value trap, with few catalysts that could help it outperform its global rivals. Europe also faces headwinds to earnings from higher capital costs, rapid wage growth and price pressures on cars. Although Japan has been one of the best performers this year, its upside is limited. Much of the positive news on ESG reform seems priced in, growth is expected to be subdued next year and the market will be one of the biggest losers from falling US bond yields. Canada, moreover, is downgraded to neutral given HSBC’s view that oil prices have peaked.
Preferred investment destination
In terms of structural growth in emerging markets, HSBC singles out Greece, along with India, Indonesia, Romania and Mexico.
HSBC, more specifically, in its recent report, had given a vote of confidence in Greece and Greek assets, underlining why the country is one of the preferred investment destinations at the moment. In the environment of emerging markets, Greek shares and especially Greek banks are among the biggest stories of the next period, at a time when they also have very attractive valuations, it was noted.
As the British bank points out, Greece and Romania are the biggest beneficiaries of the EU’s post-Covid-19 Recovery and Resilience Fund to encourage infrastructure spending. Greek macroeconomic fundamentals have also undergone a radical change and have become much stronger.
Structural stories do not happen by themselves, as HSBC emphasizes. They depend on policymakers capitalizing on positive domestic fundamentals. Policymakers in some countries, including Greece, have articulated a coherent long-term vision for development.