As governments have shown they will take whatever monetary and fiscal steps are thought necessary to boost their recession-hit economies, the prospects for equities look brighter on a 12-month perspective, said HSBC Private Bank. The firm has increased its overall risk appetite in recent weeks.

“We have shifted our main asset allocation view towards frugal risk taking. The negative feedback loop that has been plaguing the markets and exacerbating negative sentiment appears to be subsiding as stimulus packages around the world gain traction,” the note from the private bank said.

The private bank is still focused on the US economy as it predicts the world’s largest economy will be the first developed market to recover. However, in the short term, it still expects increased volatility with some further retreats, if not to the recent stock market lows.

In the fixed income market, HSBC Private Bank said it perceived more value in corporate bonds than in government bonds.

“We believe now is the time to start allocating assets into high quality investment grade corporate bonds as, selectively, the current pick-up in yield may prove to be sufficient to offset potential credit risks,” it said.

HSBC Private Bank has also upgraded its long term view for hedge funds, as it is of the view they should also benefit from an increase in risk appetite and better-performing equity markets.

“We also believe that they [hedge funds] are best positioned to take advantage of the market dislocation now that the constraints of the mass redemption cycle have subsided,” the note added.