HSBC's global ideas and investing preferences to kick off 2Q

[Multiple exposure image of London buildings]
Tim Robberts

HSBC Securities analysts shared their regional ideas and preferences for the second quarter.

Among the groups they are overweight are Europe – excluding the UK (OTC:IHPXF [https://seekingalpha.com/symbol/IHPXF]) – emerging markets (EEM [https://seekingalpha.com/symbol/EEM]), including China (FXI [https://seekingalpha.com/symbol/FXI]). Analysts are underweight Japan (EWJ [https://seekingalpha.com/symbol/EWJ]) and cautious on Japanese autos, and neutral on the U.S. (SP500 [https://seekingalpha.com/symbol/SP500]), (SPY [https://seekingalpha.com/symbol/SPY]).

Here is a breakdown:

The Magnificent 7 tech giants (MAGS [https://seekingalpha.com/symbol/MAGS]) continue to demonstrate strong earnings momentum, beating consensus estimates by 17 percentage points in Q1, said Alastair Pinder, head of Emerging Markets and Global Equity strategist at HSBC Securities.

“With earnings revisions still positive, FX tailwinds, and the consensus expecting a sizable stepdown in earnings growth to 14% year-over-year in Q2 from 30% YOY last quarter, the setup appears favorable,” he noted. This robust performance stands out as one of the most compelling investment narratives in the current market environment.

In addition, U.S. market conditions present a complex picture, with HSBC analysts expressing caution about longer-term prospects despite attractive near-term opportunities.

“If U.S. corporates are essentially forced to near-shore supply chains and live with higher input costs, margins and the return on equity could deteriorate,” Pinder warned.

Consumer-related (XLY [https://seekingalpha.com/symbol/XLY]), (XLP [https://seekingalpha.com/symbol/XLP]) stocks face particular challenges, with the strategist highlighting that “pressure on lower-income consumers is steadily mounting, particularly as elevated mortgage rates start to bite.”

European markets (VGK [https://seekingalpha.com/symbol/VGK]), (IEV [https://seekingalpha.com/symbol/IEV]), (IEUR [https://seekingalpha.com/symbol/IEUR]), (STOXX [https://seekingalpha.com/symbol/STOXX]), (FEZ [https://seekingalpha.com/symbol/FEZ]) particularly outside the UK, show promising growth potential driven by fiscal stimulus initiatives and possible deregulation, Pinder said.

The German government’s “special fund plans” to inject up to EUR500B (about 12% of GDP) into infrastructure over the next decade, should catalyze earnings revisions from 2026 onwards, he said.

Defense stocks (EUAD [https://seekingalpha.com/symbol/EUAD]) remain especially attractive within this region, with Pinder noting that NATO’s formalization of a “5% of GDP defense target by 2035” could support continued sector outperformance.

Also, emerging markets (EEM [https://seekingalpha.com/symbol/EEM]) present a bullish case with six of nine signals on the strategist’s scorecard “flashing green” compared to just two a year ago.

“Flows, the U.S. dollar (DXY [https://seekingalpha.com/symbol/DXY]), valuations, policy support, and structural themes are aligning across emerging markets,” he observed. This positive outlook extends particularly to mainland China (MCHI [https://seekingalpha.com/symbol/MCHI]), (FXI [https://seekingalpha.com/symbol/FXI]), (GXC [https://seekingalpha.com/symbol/GXC]), where policy supports through fiscal measures, monetary policy, and direct market intervention are creating important tailwinds.

China’s tech sector (CQQQ [https://seekingalpha.com/symbol/CQQQ]), (TCHI [https://seekingalpha.com/symbol/TCHI]) emerges as a particular bright spot, with the strategist highlighting DeepSeek as “a key catalyst” positioning “Chinese internet names (KWEB [https://seekingalpha.com/symbol/KWEB]) as attractive and cheaper AI alternatives for global investors.”

“Currently, China’s internet stocks (KWEB [https://seekingalpha.com/symbol/KWEB]) trade at a 12m forward PE of 15.2x, significantly cheaper than the Magnificent 7’s (MAGS [https://seekingalpha.com/symbol/MAGS]) 29.6x,” he said.

Meanwhile, Japan (EWJ [https://seekingalpha.com/symbol/EWJ]) receives an underweight rating, with the strategist cautioning that it “is one of the most exposed markets to higher tariffs and a slowdown in global trade,” with Japanese automakers (TM [https://seekingalpha.com/symbol/TM]), (OTCPK:MSBHF [https://seekingalpha.com/symbol/MSBHF]), (HMC [https://seekingalpha.com/symbol/HMC]), (OTCPK:NSANY [https://seekingalpha.com/symbol/NSANY]), (OTCPK:SZKMY [https://seekingalpha.com/symbol/SZKMY]) showing “almost no pricing power when it comes to tariffs.”

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