HSBC's annual macro strategy strongly favors China, recommending an overweight allocation to A-shares and Hong Kong stocks by 2026, along with establishing a long position in the renminbi. The recommendation is to "sell Swiss francs and buy offshore renminbi." Institutions warn of risks associated with crowded AI trading and advise reducing exposure to South Korean equities, shifting instead to assets supported by domestic demand in China, India, and Indonesia as a defensive strategy against market volatility.
In its latest annual macro strategy report, HSBC explicitly expressed a positive stance on Chinese assets, recommending that investors increase their holdings of stocks in mainland China and Hong Kong by 2026 and establish long positions in the renminbi. The bank emphasized that amid potential market volatility, the investment focus in Asian markets should shift to assets supported by domestic demand.
According to a report released on January 13 by HSBC strategists Herald van der Linde and Joey Chew, the renminbi is expected to appreciate slowly and steadily based on China’s agendas for industrial upgrading, technological self-reliance, and renminbi internationalization. HSBC recommends 'selling the Swiss franc and buying offshore renminbi,' listing the Swiss franc, US dollar, euro, and yen as potential funding currencies.
At the same time, HSBC adjusted its allocation recommendations for other Asian markets, suggesting a reduction in Korean equities, which have become crowded due to the AI boom, while overweighting stocks in mainland China, Hong Kong, India, and Indonesia. The bank noted that although AI and interest rate cuts will be the main drivers of Asian markets in 2026, fiscal pressures and crowded trades indicate that market performance throughout the year will not be smooth.
HSBC also highlighted that while some Asian central banks have room to cut interest rates to boost stock markets, the slowing pace of Federal Reserve rate cuts may limit this space. Investors will next focus on assessing the sustainability of AI-driven growth and the risks posed by overcrowded equity trading.
Overweight China and Indonesia, Underweight Korean Equities
In terms of equity strategy, HSBC advises investors to adopt a more defensive allocation approach with an emphasis on domestic demand. Strategists recommend maintaining an 'overweight' rating for stocks in mainland China, Hong Kong, India, and Indonesia. The report highlights that India and Indonesia stand out in the region due to their earnings growth potential and policy support.
In contrast, HSBC is cautious about export-oriented markets, advising an 'underweight' rating for stocks in South Korea and Thailand. This adjustment reflects a reassessment of the sustainability of AI-related gains and concerns over overly crowded trades in certain markets. HSBC warns investors to be alert to the risk of a correction in the Korean market following a rally driven by AI.
Bullish on Renminbi, Bearish on Swiss Franc
In the foreign exchange market, HSBC lists 'going long on the renminbi' as one of its top macro strategies for the year. HSBC recommends: sell Swiss francs against offshore renminbi (Sell CHF/CNH).
For other Asian currencies, the bank tactically favors the Indian rupee (INR) in the first quarter of 2026, citing seasonal narrowing of trade deficits and potential progress in US-India trade talks, recommending selling the US dollar against the rupee (Sell USD/INR). Additionally, HSBC views the South Korean won (KRW) as a high-beta currency prone to overshooting; given that South Korea has begun resisting sharp currency depreciation, the won is expected to rebound in the coming months, thus recommending selling the US dollar against the won.
On the contrary, due to rising political uncertainty and Thailand's recent tightening of scrutiny over capital inflows, HSBC adopts a cautious stance toward the Thai baht (THB). Meanwhile, the bank recommends hedging exposure to the Indonesian rupiah (IDR), as its forward exchange rate currently appears to be undervalued.
Bond Strategy and Interest Rate Outlook
In the fixed-income space, HSBC suggests starting the new year with a 'curve steepener' strategy. In terms of country selection, the bank favors bonds from India and the Philippines over those from Thailand and Indonesia.
The report analyzes that if necessary, several Asian central banks, including those of Indonesia, the Philippines, and India, still have room for interest rate cuts, which could provide support to local equity markets. However, strategists also caution that as the pace of the Federal Reserve’s interest rate cuts slows, the policy maneuvering space of Asian central banks may become constrained, representing a key macro variable investors need to closely monitor in the coming year.
Editor/Doris
