The risk of a prolonged global recession and threat of a meltdown in the financial system have eased, but the outlook for growth remains anaemic, according to HSBC Global Asset Management.

The company says growth will be at a much lower rate than before, particularly in the developed economies, which could limit the potential upside for corporate profits.

Although there may be an economic recovery next year, the level of rebound will remain subdued for an extended period due to the need for households to continue to deleverage after many years of easy credit.
 
Meanwhile, HSBC believes Asia's stronger fundamentals are largely priced in. Asia has a strong cyclical and structural growth story, but following the recent strong rally, valuations of Asian markets have expanded significantly and they do not allow for much room for disappointment or slowdown in terms of corporate earnings and economic growth. As such, the good news at the macro level appears to have been largely reflected in Asian equities' valuations.
 
The market rally in the second quarter seems to have benefited cyclical stocks such as basic materials, and has led to a divergence in valuations between cyclical and defensive sectors, says HSBC. As sectors such as utilities and healthcare have lagged, they could outperform if investors rotate into more defensive sectors.
 
Within the bonds universe, while acknowledging that the valuation case for US and Eurozone government bonds has improved significantly following the correction in second quarter, HSBC maintains its preference for investment-grade corporate and high-yield bonds. Not only are valuations more attractive, both these asset classes are likely to benefit from extensive government fiscal stimulus, which will further enhance the lending environment for corporates.
 
In terms of currencies, HSBC maintains a moderate negative view on the GBP versus EUR as quantitative easing measures adopted by the Bank of England are negative for the currency. As inflation in the UK is higher than in many parts of the world, this is a further reason to be negative on the GBP as it would affect the real yield on UK assets.