27 October 2025
A raft of new economic data out of China provided some encouraging news ahead of last week’s Fourth Plenum meetings and the drafting of a new five-year economic plan.
Q3 real GDP growth moderated to a still solid 4.8% year-on-year from 5.2% yoy in Q2. That means this year’s “about 5%” real growth target looks to be on track. It’s being supported by solid manufacturing activity thanks partly to resilient exports. Despite a sharp fall in US-bound shipments – with the US now accounting for only around 10% of China’s direct exports – the latest data show that efforts to boost competitiveness and diversify trade links are paying off. China still faces structural challenges, including weak domestic demand. However, policy support continues, including a new financing plan to fast-track technology, innovation, and infrastructure projects in consumption-related industries.
Meanwhile, in markets, profit growth expectations for 2026 have stabilised over the summer and are now positive and trending higher. We see structural improvements in returns on equity, policy support, and the strengthening tech sector – which continues to be a major profits engine – as factors that can cushion the market against macro shocks and boost confidence. Themes to watch out for include AI adoption and technology localisation, advances in biotechnology, and key areas of the mining sector.
After a strong rally this year, Chinese stocks saw some volatility in October – with 12-month forward price/earnings valuations easing back from recent highs and moving closer to their five-year average. The earnings outlook is improving, and the latest macro data look encouraging.
Listed real estate has delivered a mixed performance versus global stocks this year – outperforming in Q1, when policy uncertainty favoured defensive assets, but lagging in Q2 and Q3, when risk-on sentiment returned.
All this follows a challenging period for the sector, caused by the pandemic disruption and the elevated interest rates that followed. However, some real estate specialists think the sector could benefit from some key drivers:
#1. The resumption of rate cuts by the US Federal Reserve last month should mean that, as borrowing rates fall, the pressure on real estate earnings from higher financing costs will start to ease.
#2. The sector’s traditionally defensive role in portfolios should appeal to investors. The average dividend yield on global real estate stocks stands at a premium to both wider equities and developed market government bonds. Continuing growth in net income should also lead to further dividend growth.
#3. Some areas of the listed market are currently trading at discounts to the direct market. They include parts of the residential and industrial market, diversified stocks in the UK, prime office stocks in Europe, and stocks focussed on Canada.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg, Macrobond. Data as at 7.30am UK time 24 October 2025.
Investment grade (IG) credit spreads – the difference between the average corporate bond yield and the equivalent-maturity government bond yield – are close to multi-year lows. But the headline spreads mask some important nuances of the current cycle. For a start, government bond yields in the US and other advanced economies have been high, reflecting higher fiscal risk premia caused by wide deficits and elevated government debt. By contrast, high-grade corporates have been deleveraging, lengthening debt maturities, and building cash buffers. As a result, headline credit spreads may appear low because government bond term premia are so high. |
A different way to measure corporate debt risk is to compare IG spreads to equivalent-maturity swap rates. Swaps are instruments created by banks in response to investor demand, so swap rates don’t change in response to rising bond supply, unlike regular bond yields. Spreads between IG yields and swap rates have been consistently higher than headline credit spreads and aren’t quite at the tightest levels this cycle. So, while credit spreads may be low, valuations are probably not quite as expensive as the headline spreads suggest.
After a strong H1, and more upward revisions into Q3, US earnings are going strong, with year-on-year profit growth close to 9%. With 20% of firms having reported, there have been more beats in healthcare and staples, than tech and consumer discretionary. European earnings, by contrast, were disappointing in H1, causing investor enthusiasm to fizzle. Earnings were disrupted by US tariffs, a stronger euro (denting profits for exporters – with more than 50% of sales outside the eurozone), and competition from China. That hurt key sectors like autos and luxury goods and drove expected 2025 earnings growth to just below zero – down from 7% pencilled-in by analysts in January. |
But after this reset, there could be room for upside surprises. July’s US-EU trade deal has given firms more certainty, and the rate environment is favourable, particularly for banks. Despite this year’s rally, valuations are still relatively low in places. The GRANOLAs index includes many of these stocks in healthcare and luxury goods.
Cyclically, there has also been support. Fed rate cuts lower the opportunity cost of holding the non-yielding asset. Some investors may also be concerned about the risk of a resurgence in inflation as the US engages in a capex binge, alongside the imposition of tariff measures. And although gold is rallying alongside risk assets, could some investors be holding more gold as a hedge against a potential sell-off? Overall, in a shift to a multi-polar world with higher and more volatile inflation, and debt concerns, the structural bull story remains intact. But the sheer speed of recent price increases probably calls for some tactical caution. Last week’s volatility in prices shows there could now be some unease creeping into the market.
Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 24 October 2025.
Source: HSBC Asset Management. Data as at 7.30am UK time 24 October 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. *The ongoing government shutdown in the US may delay the expected releases of official data
Risk markets were broadly positive on expectations of further Fed easing this week. The DXY index strengthened, while US Treasuries were range-bound ahead of the US CPI data, a rare release amid the ongoing US government shutdown. UK Gilts outperformed on growing signs of disinflation. US and eurozone credit spreads remained stable. In equity markets, US stocks advanced, as investors digested broadly upbeat Q3 earnings, with the Euro Stoxx 50 also posting gains. Japan’s Nikkei 225 rallied, aided by a weaker yen and rising optimism for fiscal easing under new PM Sanae Takaichi. Other Asian markets performed well ahead of the APEC meeting: Korea’s Kospi surged to a record high, with India’s Sensex also extending recent gains. Hang Seng Index partially recovered from losses over the past weeks. In Commodities, geopolitical concerns lifted oil prices, while gold saw a pullback.
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