HSBC Private Bank, which like its peers is trying to calculate the risks of a possible “double-dip” recession, argues that investors should not seek refuge in cash as returns will underperform other assets, and argues that investors should be exposed to income-generating sectors such as dividend-paying stocks.

The bank predicts that over the next two to three years, global economic growth will be below recent average levels, which means equity returns will come in at between four to seven per cent.

“We do not foresee a return to a recessionary environment or a deflationary scenario in the coming 12 months,” said Willem Sels, head of investment strategy for HSBC Private Bank, UK & Channel Islands.

“In our view, it is unlikely that asset returns will quickly return to those observed before the credit crisis. This should not keep investors on the sidelines though, because, in our view, cash will probably continue to underperform even more.”

Bond yields, Sels said, will also be lower than they were in the last 30 years, applying both to short and long-dated maturities. “The main challenge for future bond returns is the current starting point: bond yields are very low. This means that current income (yield) is low, and this may remain the case for some time. When yields eventually rise back to more normal levels, bond investors are also faced with the prospect of rising prices,” Sels’s note said.