HSBC Asset Management's 2024 investment outlook suggests a transformative phase in global markets, driven by shifting dynamics and potential recessionary risks, reveals a report obtained by CNBC.

Here are the key takeaways from the outlook:

Heightened Recession Risk and Monetary Policy Shift

The report notes a critical concern regarding global economies, citing tight monetary and credit conditions as precursors to a potential growth shock in 2024. HSBC Asset Management anticipates a fall in U.S. inflation to the Federal Reserve's 2% target by late 2024 or early 2025, with similar trajectories expected for major economies' consumer price index figures.

HSBC predicts the Fed's initiation of rate cuts by the second quarter of 2024, possibly exceeding the 100 basis points already factored in by markets. It also foresees similar actions from the European Central Bank, albeit lagging behind the Fed, while the Bank of England might initiate rate cuts but at a delayed pace.

Shift towards a 'New Paradigm'

The rapid tightening of monetary policies over the past two years is steering global markets into what HSBC terms a "new paradigm." Expectations center around interest rates hovering near 3% and bond yields at around 4%, influenced by a multipolar world, an evolving global order, intensified fiscal policies due to changing political dynamics, environmental concerns, and a shift towards net-zero carbon emissions.

Focus on Defensive Growth and 'Bonds are Back'

While markets lean towards a "soft landing," anticipating central banks to tackle inflation without triggering recessions, HSBC Asset Management raises concerns about recessionary risks. This outlook prompts a defensive growth strategy, emphasizing the resurgence of bonds.

According to HSBC AM, a weaker global economy and slowing inflation will likely favor government bonds, posing challenges for equities. Selective opportunities in global fixed income, including U.S. Treasury, core European bonds, investment-grade and securitized credits, are highlighted.

Equity Market Outlook

HSBC AM exercises caution on U.S. stocks, expressing concerns over high earnings growth expectations and stretched market multiples. Meanwhile, European stocks are deemed relatively affordable, lessening downside risks unless a recession materializes. Japanese stocks, backed by attractive valuations and policy shifts, may outperform in developed markets.

The 2024 investment outlook reflects a nuanced approach in a world at a crossroads, advocating a shift towards defensive growth strategies and signaling a resurgence of interest in bonds amid evolving global dynamics and looming recessionary risks.