HSBC Asset Management’s Post

𝗧𝗵𝗲 𝗣𝗲𝗿𝗶𝗹𝘀 𝗼𝗳 𝗠𝗶𝘀-𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝗶𝗻 𝗮𝗻 𝗘𝗿𝗮 𝗼𝗳 𝗩𝗼𝗹𝗮𝘁𝗶𝗹𝗲 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗥𝗮𝘁𝗲𝘀 Amidst Higher for Ever concern on rates with volatile market conditions, what are appropriate defensive balance sheet strategies for Banks? Whats for individuals ? 1. Mis-pricing products, in the absence of proper system driven matched maturity funds transfer pricing, could be disastrous, especially under current interest rate path . Why? 2.Because using current liquidity profile to price especially loan products could trigger liquidity, profitability triggers , given uncertain yield curves , particularly when you dont consider NSFR ( a ratio mandated for Banks to maintain long term stability in liquidity ratio) in FTP . Because liquidity drain at shorter notice is something cannot be ruled out . 3. Balance Sheet contraction/prudent liquidity management with approrpriate stress testing is such a critical play at these times, including ensuring hedging . Especially, liquidity outflow materially at short notice for redeployment into equity markets can be expected , this defensive play is critical, besides diversification of funding sources. 4. It is now fighting credit risk, than inflation and therefore the need to play super defensive play structurally in ensuring product pricing properly reflects proper matched tenor FTP and residual risks fully hedged. 5. FTP is usually a hated topic with endless arguments, but at the end of the day , given that Bank's assets & liabilities both ought to be treated on par and priced fairly duly factoring respective yield curve tenors in order to accurately measure profitability at product/division level, proper system at these times built with NSFR factor as well would help risk mitigating materially. 6. For individuals, investing in quality bonds to lock in at very good spread, both for tactical play and yield enhancement is something we should do, covering soverign/corporate sectors, as sudden rate drop would result in bond lowering yield opportunity. A good portfolio allocation into bonds is something help you building a path towards financial autonomy. #FinancialManagement #RiskManagement #InterestRates #BankingIndustry #FundsTransferPricing #FinancialStability #EconomicVolatility #MiddleEastFinance #AsiaFinance #FTP #InvestmentStrategy #BankingLeaders #BusinessStrategy #PersonalInvesting #FinancialInsights #CorporateFinance

Partner Content: Two underappreciated sectors offering potential This year’s bank crises were certainly dramatic. But looking forward, PIMCO is confident that we are through the worst, particularly because higher interest rates should be supportive for the banks’ profitability. “Even though interest rates have been increased dramatically, many banks are not passing them along to depositors,” says Alfred Murata. Read more in this Fixed Income Spotlight sponsored by PIMCO https://bit.ly/3SbC2De

In the wake of recent turbulence within the banking sector, fueled by escalating worries over the resilience of select US commercial real estate sectors (“CRE”), we see Euro Area CRE experiencing similar signs of stress, which has impacted banks with meaningful exposure to both regions. Read more here: https://hubs.la/Q02lYJ6m0

As a Treasurer in a post-U.S. Fed rate-cut environment, the focus areas should include: 1. Liquidity Management: Ensure your organization's liquidity levels are optimized to take advantage of lower borrowing costs. Cash flow forecasting and managing working capital efficiently are key. 2. Debt Assessment: If interest rates have dropped, explore opportunities to refinance existing debt at lower rates to reduce overall borrowing costs. Do consider other costs which potentially be incurred for any refinancing. 3. Investment Strategy: Adjust your investment portfolios to reflect lower yields in safer assets, potentially seeking slightly higher yields in other opportunities while managing risk. You may also consider placing excess fund in capital preservation investment for longer tenure in anticipation of further rates cut. 4. Interest Rate Risk Management: With expectations of further rate cuts, reassess your interest rate hedging strategies to protect against rate volatility. 5. Foreign Exchange (FX) Management: Lower U.S. interest rates may impact exchange rates, so revisiting FX hedging strategies becomes important, especially if you have significant international operations. 6. Capital Allocation: Evaluate capital projects, M&A opportunities, and other investments in light of lower costs of capital. #Treasury #FinancialRisksStrategy

The relationship between the trend in the percentage change of M2 money supply and the 3-month Treasury bond yield for the US has been analyzed. Until 2020, an overall increase in M2 was observed. However, after 2020, the cumulative increase in money supply started to show a declining trend. In the macroeconomic monetary policy, short-term (less than 1 year) financing rates continue to remain at high-risk levels amidst a tightening cycle. The Federal Reserve (#Fed) is currently persistently implementing a tight monetary policy. Although there is expected improvement in financial conditions in the long term, it can be said that positive financial conditions have not yet been reflected in short-term financing rates. #fed #investment #investing #finance #financing #data #climatechange #marketing #markets #bank Bank of America Deutsche Bank HSBC Commercial Banking Deutsche Bank Corporate Bank HSBC Global Banking and Markets Deutsche Bank Investment Bank Goldman Sachs Investment Banking UBS Investment Bank European Central Bank J.P. Morgan Private Bank JPMorgan Chase & Co. Vanguard BlackRock Blackstone MSCI Inc.

Most economies maintained better-than-expected growth in 2023, helping offset the negative impact of persistently higher interest rates. Defaults will remain near current levels by the end of the year after peaking around Q3. Softer economic growth and still-elevated interest rates will pressure low-rated corporates in consumer-related sectors and emerging markets. Early 2024 has provided an opportunistic window for issuers to refinance debt, albeit at noticeably higher rates. Go deeper into our global credit conditions coverage: https://ow.ly/uqX750R6UWy

Survey: How Treasurers Are Positioning Cash With Possible 2024 Rate Volatility. Treasurers, likely seeking to diversify their cash holdings to navigate rate and market uncertainty, are looking to money market funds, short-term bonds and ESG funds among others. Over the past two years, investors have navigated significant volatility in short-term investments, driven in no small part by skyrocketing inflation and aggressive interest rate increases by central banks globally. As a result, cash managers such as corporate treasurers must keep careful watch over portfolio diversification, investment duration and regulatory changes. To better understand the challenges and opportunities that cash investors face amid this volatility, we partnered with the publication Treasury Management International to survey more than 200 corporate treasurers across global regions and industries. The survey covered a range of topics, including how this market has impacted their investment strategies and how they have positioned their portfolios for uncertainty ahead.

📌 Money Market Tuesday Market Update: Liquidity in the money markets tightened significantly in July 2024, with the average interbank rate edging up by 4.3 basis points to 13.2%, compared to 13.1% in June. The volume of interbank trades also saw a notable increase, with an 18.7% jump to Kshs 28.6 billion. This tightening continued into the last week of July, partly due to tax remittances offsetting government payments, driving interbank volumes up by 40% to Kshs 34.0 billion. 🔍 What This Means for You: With market liquidity tightening, it’s essential to stay informed and choose a Money Market Fund that aligns with your financial goals. These top-performing funds offer competitive returns and could be a smart move for your investment portfolio. 💡 Ready to Invest? Explore these funds today and make informed decisions to secure your financial future.

Money-market funds experienced their highest weekly withdrawal in approximately five years, according to BofA Global, with investors withdrawing $140.14 billion in the past week, marking the largest outflow since at least May 2019. Following last year's regional banking crisis, money-market funds saw a significant increase in assets, driven by appealing yields of about 5% on cash-like investments. The large outflow from money-market funds reduces the amount of cash available for short-term borrowing and lending. This can increase short-term interest rates and potentially tighten liquidity in the financial markets, especially if such withdrawals continue. Rapid changes in fund flows can increase market volatility. Financial markets may react to the sudden shift in liquidity and investor sentiment, affecting various asset classes. Here is a breakdown of fund flows across different asset classes for this year so far, using data from EPFR Global, BofA Global Research.

Role of Devergent Expection in the operation of Capital Market Divergent Expectations play a crucial role in the day-to-day operations of the Capital Market, especially in the Secondary Market. In the Capital Market, the factor enabling daily trading during varying market conditions like bearish, bullish, or sideways trends is divergent expectations. Changes in NRB policy can significantly impact the liquidity of financial markets. These changes not only affect liquidity directly through Central Bank Repo activities but also through the informational "signals" they convey. For instance, an unexpected cut in the Bank rate serves as an information shock that can signal both current economic weakness and the Central Bank's efforts to stimulate economic conditions, ultimately strengthening the macro economy in the long term. Such scenarios often lead to "divergent expectations" among market participants. While some may trade based on short-term economic weakness by investing in bonds, causing interest rates to fall and selling stocks, others with a more optimistic outlook focus on future economic strength, investing in riskier assets like stocks that perform well in expanding economies. Understanding these dynamics is crucial in the realm of Investment Banking, where market participants navigate through divergent expectations to make informed investment decisions.