HSBC Private Bank has downgraded its position on global equities from positive to neutral owing to expectations of a slowdown in global growth, Fredrik Nerbrand, the bank’s head of global strategy, has revealed.

The bank went positive on equities in March last year, as it believed the outlook was broadly positive and the market had exaggerated fears of a great depression. Current macroeconomic and financial outlooks show a more balanced view: while the bank continues to pare down risks, it expects equity markets to continue on a gradually improving trend, rather than the stellar appreciation of 2009.

According to Nerbrand, the predicted slowdown in global growth can be attributed to several factors. Policy support in emerging markets will be withdrawn over the coming quarter, in the bank’s view, with particular attention to be paid to the ongoing tightening of lending policies in China and interest rate hikes in India, which the bank's strategy team believes will restrict a part of the world which has contributed strongly to global growth. 

Most of the current recovery in the West has come from transitory factors such as fiscal support and inventory adjustments; and although consumer outlook in developed markets has started to improve, it is at a very slow pace, Nerbrand said. 

Furthermore, he sees forthcoming banking regulations as likely to limit loan growth, as well as economic growth prospects. Consequently increased corporate capital expenditure is necessary for continued growth. However, any increase in capital expenditure is more likely to go to emerging markets than to developed markets, increasing the divergent performances of emerging and developed markets, according to the bank.

Lastly, HSBC believes current market optimism will start to wane. The Bank of America Merrill Lynch Fund Manager Survey shows a net 52 per cent of asset managers are overweight equities, and consensus earnings estimates for some emerging markets which HSBC thinks are overly optimistic - such as 58.6 per cent for India for the coming 12 months. Nebrand views these numbers as future disappointments.