HSBC Global Private Banking expects risk assets to remain well supported by a healthy global economic outlook, broadening earnings growth, and synchronised central bank rate cuts in the first half of 2025.

The bank believes equities will outperform bonds, and bonds will outperform cash. It is overweight on equities in the UK, Japan, India and Singapore for their favourable growth appeal and risk-reward profile.

Opportunity to add exposure

HSBC GPB views the recent pullback in Indian equities as an opportunity to add exposure. “Double-digit earnings growth, superior return on equity relative to other Asian peers, robust economic fundamentals, easing of valuations after the recent pullback are supportive for Indian equities,” said James Cheo, Chief Investment Officer, Southeast Asia and India, Global Private Banking and Wealth, HSBC.

The bank prefers large-cap stocks over mid- and small- cap stocks given their more defensive nature and relatively reasonable valuations. It retains its preference for financials and industrials sectors but see growing uncertainties for the consumer discretionary sector.

HSBC GPB expects the RBI to deliver two rate cuts of 25 bps over February and April, bringing the policy rate to 6 per cent for the rest of the year. It is bullish on Indian local currency government bonds and expects them to outperform cash in 2025 and USD-INR to end the year at 86.

“We expect rupee bonds to continue to deliver stable returns in 2025 owing to RBI rate cuts leading to lower yields and capital appreciation for bond prices, an attractive yield of around 6.9 per cent and favourable technicals owing to moderate supply due to fiscal discipline as well as strong demand from international investors stemming from global index-inclusion linked flows,” said Cheo.

The bank expects Asia ex-Japan GDP growth to stay resilient at 4.4 per cent in 2025, well above the global average of 2.7 per cent growth, thanks to robust domestic growth in India and ASEAN, coupled with China’s broadening policy stimulus. India’s domestically driven earnings profile makes it defensive to US tariff risks.

HSBC GPB expects the Federal Reserve will continue the rate-cutting cycle with three more 25 basis points of rate cuts in March, June and September.