By Willem Sels, global CIO of HSBC Private Bank and Premier Wealth
With economic pressures, ongoing global conflict and important political events ahead, markets can feel unsettled. However, the global economy has proven more resilient than many expected.
Despite higher energy prices, increased borrowing costs, the pace of AI development and more, many companies have continued to deliver strong earnings.
Still, periods of uncertainty provide useful opportunities for entrepreneurs, multi-generational families and investors alike to pause and revisit their longer-term goals. Doing so can help prevent overreacting or underreacting to changing conditions.
We set out three key considerations to help clients review their portfolios with greater confidence in times of uncertainty.
Understand what’s shaping markets today
When market conditions are shifting, it can be tempting to react to every headline, as even a small percentage movement can represent a meaningful change in value. Beyond the impact on your investments, periods of uncertainty may also affect the cost of financing a business and the timing of major purchases or commitments.
For entrepreneurs and families managing substantial wealth, this makes the market backdrop particularly relevant. To help you understand what market conditions could mean for your wealth, businesses and future plans, here are three factors we are focused on right now: long-term interest rates, government borrowing and the political events ahead.
1. Consider what higher yields mean for you
One way to understand how wider pressures are affecting markets is to look at the interest rate environment in key regions like the US, UK and France. They help set the tone for borrowing across the economy.
Taking a look at the US, recently, the yield – or the return – on the US 10-year Treasury moved above 5%, the highest it has been in decades. If Treasury yields remain elevated, they may put pressure on corporate profits, household spending, investment spending and economic growth.
However, while rising yields can create some volatility, they also provide more attractive entry points to bonds. We continue to see opportunities in high-quality bonds with maturities between five and seven years to balance income and sensitivity to changing interest rates.
Even if yields remain elevated, we think the risk of a credit crunch is limited as overall corporate borrowing is not particularly high in historical terms. We are therefore focused on selectivity: using bonds thoughtfully within a diversified plan, rather than viewing volatility as a reason to step away.
2. Rising government borrowing in perspective
Another factor impacting markets is the growing amount governments are borrowing. The fiscal deficit – the difference between what a government spends and the income it receives – can push borrowing costs higher and influence both currencies and the flow of investment between countries.
For entrepreneurs and families, this may make it more expensive to finance or invest in a business and affect the value of some investments.
This is a reason to review your portfolio’s exposure to interest rate changes and government debt. It’s also a reminder that diversification matters, not only across asset classes, but across regions, currencies and issuers.
3. Look beyond short-term political headlines
As midterm elections approach in the US, investors are considering what a potential change in control of Congress could mean for their portfolios. Major political events can influence expectations for taxes, trade, regulation and public spending.
While markets may react quickly to opinion polls, policy announcements or changes in government control, the longer-term economic impact remains unclear.
Rather than repositioning a portfolio around one possible outcome, it may be more effective to focus on fundamentals: the strength of company earnings, balance sheets, valuations and long-term growth opportunities.
Political developments may create periods of sector or regional volatility, but they don’t necessarily alter the underlying investment case. A portfolio built for a range of outcomes is less dependent on getting one forecast exactly right.
Considered action, not reaction
Market volatility is a useful prompt to check that your portfolio still supports your goals, whether that includes growing a business, funding major commitments or supporting the next generation.
It is key to assess how changing market conditions may affect your wider plans and whether potential opportunities fit your objectives, time horizon and comfort with risk. The aim isn’t to predict every market move but to keep your wealth resilient, flexible and aligned with what matters most to you.
