Hard Times - Industrial policy is back, now there is more natural risk

Financial Advisory

23 November 2023

Advisory DistributorsChinaFinancial AdvisoryInvestmentsPortfoliosRecessionUS

Expert: Joe Little, Chief Global Strategist, HSBC Facilitator: Brod Whiting, Director, JoynedUp Ltd


  1. Soft landing narrative and growth outlook - Disinflation has contributed to 'soft landing' optimism in 2023 amid robust growth, especially in the US. But global growth is set to slow in 2024 with recession risks in Europe and US. The Fed is likely to start rate cut cycle first, BoE last.
  2. New paradigm of higher rates and inflation - Unlike the 2010s, policymakers are utilising fiscal policy more amid geopolitics, supply shocks and populism. This new paradigm means rates around 3% not 2% or less, bond yields 3.5-4% in equilibrium. 2% inflation is no longer viewed as a ceiling but as a floor. This was not seen as a new paradigm by many in the room who had experienced similar situations in the early 90s when interest rates were considerably higher.
  3. Portfolio implications - Stocks see 7% returns but more volatility. There is a need to diversify beyond 60/40 stocks/bonds into wider alternatives like private credit and real assets, but a bumpier journey should be expected.
  4. Role of younger investors - Younger investors are more risk tolerant but still have mortgages to pay. They may favour active management and alternatives over passive indexes.
  5. Outlook for China and Asia - China faces a potential 'lost decade' of growth below 5% like Japan. India is the new growth leader in Asia. The world is more multi-polar, which means more Emerging Market opportunities.
  6. Strategic asset allocation - Expand the opportunity set beyond core stocks and bonds into wider alternatives like credit, real assets, hedge funds for diversification – but the journey will be rougher. 


The session discussed various economic trends, monetary policy, and investment considerations in light of inflation dynamics and policy responses.

Disinflation has contributed to a 'soft landing' narrative in 2023, but global growth is set to slow in 2024 amid recession risks. Fiscal policy looks set to become less supportive.

There is a new paradigm of higher interest rates and inflation compared to the 2010s as policymakers utilise fiscal policy more amid geopolitics, supply shocks and populism. Interest rates to average 3% not around 0%.

Bond yields around 3.5-4% in equilibrium; stocks 7% but with more volatility. Intelligent diversification beyond 60/40 stocks/bonds is needed.

Key takeaways:

  • Review asset allocation for opportunities in wider range of alternatives beyond core stocks and bonds, but communicate potential for more volatility
  • Consider increasing exposure to active strategies and emerging markets as dispersion creates stock-picking opportunities
  • Discuss China outlook with portfolio management team and implications for EM exposure
  • Research younger investor preferences and risk tolerance to tailor communication and product offerings
  • Analyse portfolio sensitivity to sustained higher interest rates and inflation around 3%
  • Model impact of multi-polar global economy and supply shocks on return assumptions
  • Assess hedge fund strategies and private credit for diversification and risk mitigation. Should be a good environment for picking stocks. However, the high bar set by the Consumer Duty of do no harm makes it very difficult to put capital at risk