LIVE MARKETS-Case for alternatives not simply tactical, but strategic - HSBC

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CASE FOR ALTERNATIVES NOT SIMPLY TACTICAL, BUT STRATEGIC - HSBC

The case for "alternatives" - investments beyond stocks, bonds and cash - will have a key role to play as investors grapple with the policy and macro instability that has defined 2025 so far, says HSBC.

In its 2025 mid-year investment outlook note, HSBC says the old macro assumptions and the typical investment market playbook is being upended.

Among a fresh set of rules is a move to new assets as investors ride a wave of uncertainty and volatility.

"We think investors are going to have to get comfortable with uncertainty being a feature of the system, rather than a bug."

With correlations between U.S. bond yields, stocks, and the dollar increasingly erratic, HSBC says it is clear that policy uncertainty and concern around debt sustainability are shaking investor assumptions on the perceived haven properties of U.S. assets.

So what other options are on the table?

European duration and selective high-quality public and private credits are just some.

"Other liquid risk mitigators – such as macro hedge funds and gold – can also provide diversification. And for global investors in US assets, currency hedging strategies may play an increasingly important part of their decision-making process."

HSBC says hedge fund strategies offer low correlation to broader market indices and may even benefit directly from volatility.

In fact they point out that this year balanced hedge fund portfolios insulated investors from about 90% of the Q1 stock market drawdown.

Meanwhile infrastructure offers stability given its general insulation from the economic cycle, with opportunities standing out in U.S. energy and renewable expansion in Europe and North Asia.

"Private credit remains compelling amid bank retrenchment and heightened capital requirements."

"Meanwhile, private equity deal activity has proven resilient, with managers well-positioned to capitalise on thematic growth sectors like technology, healthcare, and energy."

(Lucy Raitano)

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