He shares three broad themes that would offer investment opportunities in the years to come:
Energy transition: An increasing number of governments and industries have made net zero carbon emissions pledges, and the transition to a low-carbon future is set to involve major reconfigurations in the way industries and society function.
Winners from this megatrend are companies that successfully adapt to the transition. Producers of low-carbon or renewable energy, as well as those developing new technology that help the world in the transition, will also benefit.
In Asia, China’s ambition to reach net zero emissions by 2060 will herald a green revolution with significant investments aimed at increasing the use of clean energy, promoting electric vehicles and greening supply chains.
Protecting biodiversity: A research by the World Economic Forum found that more than half of the world’s GDP is moderately or highly dependent on nature. So, damage to nature and biodiversity threatens global economic activity.
The winners in this area are companies in the circular economy, which promotes recycling and reusing products for as long as possible to reduce waste.
Social factors: The social pillar of ESG investing is receiving more attention as research shows that socially responsible companies perform better in the long term2. This is because companies with a more diverse workforce as well as those that respect human rights and focus on developing talent tend to have stronger leadership, happier employees, and more resilient operations.
Navigating economic uncertainties
Financial markets are likely to remain volatile in the coming months, given higher inflation, slowing economic growth and the likelihood of further interest rate hikes by the US Federal Reserve and other central banks.
“Such an environment requires investors to be more proactive in strengthening the resilience of their portfolios,” says Mr Cheo.
Steps that investors can take include reducing cash holdings to avoid having portfolio value eroded by inflation, and diversifying investments with a mix of stocks, bonds and alternative assets to hedge against rising inflation.
In terms of investment options, HSBC picks the US market for its economic growth prospects and those in South-east Asia, given the region’s reopening from pandemic-related closures. The bank also suggests adding income through dividend stocks and high-yielding bonds.
“Remember that time in the market is more important than timing the market, so they have to stay invested through the cycle,” says Mr Cheo.
ESG investing could help investment portfolios navigate current uncertainties and prepare for the major transition towards a greener and more equitable future.
“You have to look for quality companies that can thrive with higher prices, that can navigate a volatile environment. That’s why we think that ESG leaders are going to be one of the winners that will come out from this uncertain macro-environment,” says Mr Cheo.
But above all, investors should always pick investments that suit their risk appetite and profiles.