Global Equity Data Monitor: Let the debates begin

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (USA) Inc View HSBC Global Research at: https://www.research.hsbc.com  Highlights of the data  US economic policy uncertainty is the highest since 2013 (see chart), as the Nov 8 election nears (page 47). Rising uncertainty historically raised volatility and depressed capex and valuation multiples. Sept 26 is the first presidential debate between candidates. The differences in their proposals are significant. The Mexican Peso has been particularly impacted, touching an all-time low last week (see US Elections: Global multi-asset implications and Trump and LatAm). Rising policy uncertainty globally is one of a number of potential catalysts for the market pullback we see by year-end. The ‘safer-haven’ characteristics of US equities likely make it more resilient to this than international markets. EM weakness would be a buying opportunity. Key data points 1. Global equities rose more than 2% the past week (ending 22 Sep), on monetary policy relief, with the BoJ doubling down on its 2% inflation target and the Fed leaving its target rate unchanged. EM was the top performing region, leading DM by 1.5% in USD terms. All markets were up, with top performers Brazil, Norway and Japan all up over 5% (page 08). Among sectors, Utilities and Materials outperformed whilst Consumer Staples and Energy lagged (page 11). 2. Equity funds saw outflows last week both from DM and EM, whilst bond funds saw inflows. DM equities outflows were focused on US and European funds. In EM, equity funds saw their first outflows in 12 weeks, led by China and India, whilst Mexico, Taiwan and Korea saw inflows. EM bond inflows have been c.3x equity inflows this year (see GEMs funds flows) (page 43) 3. Sector rotation has reversed. After outperforming since June, cyclicals lagged defensives the past two weeks. Dovish monetary policy decisions (see FOMC Multi-asset Reaction) and lower G4 bond yields supported this recovery. We are cautious cyclicals (underweight discretionary and IT sectors), given downside risks to the business cycle and over-optimistic earnings. We are overweight utilities, real estate, and staples, on lower-for-longer bond yields (chart below) and relative under-ownership. 25 September 2016 Ben Laidler Global Equity Strategist HSBC Securities (USA) Inc. ben.m.laidler@us.hsbc.com +1 212 525 3460 Daniel Grosvenor* Equity Strategist HSBC Bank plc daniel.grosvenor@hsbcib.com +44 20 7991 4246 Yevgeniy Shelkovskiy Equity Strategist HSBC Securities (USA) Inc. yevgeniy.x.shelkovskiy@us.hsbc.com +1 212 525 3035 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Global Equity Data Monitor EQUITY STRATEGY GLOBAL HSBC COUNTRY STRATEGY ALLOCATION Country/Region HSBC Consensus US Overweight Overweight UK Neutral Overweight Eurozone Underweight Underweight Japan Underweight Underweight EM Overweight Underweight - Brazil Neutral Overweight - China Neutral Underweight - India Neutral Underweight - Russia Overweight Underweight Key Views Overweight US and EM Overweight High Dividend Yield, Non-Cyclical Growth, Energy sector *Note: Consensus ratings are EPFR global funds active weights compared to history, where positive Z score is overweight and negative Z score is underweight Source: HSBC, EPFR Global. US Economic policy uncertainty (EPU) index highest since 2013 Sector sensitivity to changes in the US 10Y bond yield* Source: Economic Policy Uncertainty, Thomson Reuters Datastream. For background see Laidler, Profiting from Uncertainty, 6 June 2016 Source: MSCI, Thomson Reuters Datastream, HSBC. *Correlation co-efficient 30609012015018021024027098990001020304050607080910111213141516US EPU (3mma)LT Avg.+/-1SDLet the debates begin  EQUITY STRATEGY  GLOBAL 25 September 2016 2 Latest equity strategy reports 3 HSBC Regional Recommendations 4 HSBC Sector Recommendations 5 This week’s calendar 6 Performance 7 Regions/countries 8 Global sectors 11 Top stocks by region* 12 Investment styles 13 Small Caps 15 Disaggregation of MSCI Index weights 16 Region-sector matrices 17 Indexes vs. earnings 18 Valuations 20 Regions/countries 21 Sector neutral PEs 23 Global sectors 24 Top stocks by region* 26 Earnings 27 Earning season analysis 28 Consensus 12M forward EPS change 29 Earnings growth forecasts – regions/countries 30 Earnings revision ratios – regions/countries 31 Earnings growth forecasts – global sectors 32 Earnings revision ratios – global sectors 34 Earnings revision ratio – Top stocks by region* 36 Earnings vs peak and trend 37 Sentiment 39 Sentiment indicators 40 Analyst recommendations 41 Top stocks by region* 42 Fund Flows 43 Institutional investor holdings 44 Technical Indicators 46 Technical indicators 47 Correlations 48 Mac