SKN | HSBC Identifies the Structural Forces Keeping Risk Assets Resilient

Key Takeaways:

• HSBC argues that risk assets have become unusually resilient because growth and earnings have repeatedly held up better than consensus expectations.
• The bank highlights a combination of wealth effects, persistent equity allocations, stronger central-bank tools and lower private-sector leverage as important structural supports.
• HSBC strategist Max Kettner believes the greatest threat to this resilience would come from a deterioration in the U.S. growth, earnings and financial-conditions backdrop.
• For global wealth holders, HSBC’s analysis suggests that portfolio resilience should not be confused with the disappearance of macroeconomic risk.

HSBC has outlined why financial markets continue to absorb negative catalysts without a sustained deterioration in risk appetite, arguing that the resilience reflects a structural change in how markets respond to economic and financial shocks. The bank’s analysis is less about declaring risks irrelevant and more about identifying the mechanisms that have repeatedly prevented those risks from producing lasting damage across risk assets.

HSBC Sees Earnings Resilience as the Primary Market Support

HSBC strategist Max Kettner points to the resilience of economic growth and corporate earnings as the central explanation. Since 2022, markets have confronted higher inflation, elevated interest rates, the U.S. regional banking crisis, tariffs, the cryptocurrency downturn and the unwinding of carry trades. Yet corporate earnings, including outside technology and artificial intelligence, have generally remained stronger than consensus expectations.

For HSBC, this matters because valuation support becomes considerably more durable when earnings continue to absorb macroeconomic shocks. Markets can tolerate negative catalysts more easily when the underlying corporate cash-flow outlook does not deteriorate materially.

HSBC Highlights a Shift in Portfolio Diversification

The bank also identifies an important change in the relationship between equities and bonds. A positive equity-bond correlation has reduced the traditional diversification benefit of fixed income, helping maintain relatively high equity allocations despite periodic volatility.

At the same time, HSBC points to the wealth effect as another stabilizing force. Rising asset values can strengthen household and institutional balance sheets, supporting spending and maintaining demand for financial assets. This creates a feedback mechanism in which stronger markets can themselves reinforce financial conditions.

A Larger Policy Toolkit Has Changed the Shock Response

HSBC argues that today’s financial system also benefits from a much broader central-bank toolkit than existed before the global financial crisis. Alongside this, developed economies have become less dependent on oil than during the energy shocks of the 1970s and 1980s, while leverage across non-government sectors remains comparatively contained.

The bank also cites improvements in credit-index quality, faster price discovery and passive-fund rebalancing. Together, these mechanisms can allow markets to process shocks more rapidly rather than allowing individual disruptions to become prolonged systemic events.

The U.S. Remains the Critical Risk Concentration

HSBC’s analysis does not suggest that the current environment is permanently protected. Kettner identifies the U.S. as the most important vulnerability because of its dominant position in global equities and credit markets.

Potential pressure points include higher corporate taxation, a renewed period in which equities and bonds move inversely because inflation falls below target, or a meaningful reduction in perceived central-bank support. HSBC considers the last scenario particularly difficult to envision given the increasingly close relationship between equity valuations, household wealth and broader financial conditions.

For sophisticated global wealth holders, the message from HSBC is therefore nuanced: resilience is structural, but not unconditional. The key variables to monitor are U.S. earnings durability, financial conditions, policy credibility and the relationship between equities and fixed income. These factors will determine whether the market’s ability to absorb negative catalysts remains intact as the macroeconomic cycle evolves.

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