Download A deflationary wave has arrived in the Eurozone but it is not the next

Macro Insight
March 2015
A deflationary wave has arrived in the Eurozone
but it is not the next Japan
For professional clients
and institutional investors only
reasonable to distinguish between deflation due to
some favourable external shock or supply-side
development, such as the slump in oil prices, and a
more general decline in the prices of goods and
services due to weak demand. The former is sometimes
described as ‘good’ deflation, which may simply
increase the amount of money that people have to
spend on other items. But even where falling prices are
a symptom of weakness in domestic demand,
sometimes described as ‘bad’ deflation, the resulting
boost to real incomes may still mean that deflation is
part of the cure.
Summary
 Low oil prices drove Eurozone inflation into negative
territory in December 2014
 The current outlook for deflation is not necessarily
dangerous, as it is mainly driven by the oil price
drop, which only has a temporary impact on energy
price inflation
 However, low core inflation could continue as wage
growth will remain weak due to a large amount of
slack in the labour market
What is going on in the Eurozone and US?
 The ECB’s QE programme reduces headwinds to
inflation through a weaker currency
High levels of spare capacity across the developed
world, in addition to deleveraging forces, have exerted
downward pressure on global consumer prices. The
recent tumble in commodity prices has exacerbated this
trend. In the US and Eurozone, inflation has already
dipped below zero while the UK, Japan and most of
Asia are experiencing disinflationary trends.
Accordingly, the Federal Reserve and the Bank of
England are likely to ‘look through’ a period of deflation
and begin raising rates. However, a phase of falling
headline consumer prices has opened the door for
easing by over 30 central banks so far this year,
particularly in emerging markets.
 By the end of 2015, we expect inflation to pick up in
Europe as there is a positive base effect from the
decline in the oil price in 2014
What is deflation and why is it so bad?
Deflation in the Eurozone is a “protracted fall in prices
across different commodities, sectors and countries. In
other words, it is a generalised protracted fall in prices,
with self-fulfilling expectations”. This is the definition of
deflation that ECB President Mario Draghi gave in the
summer of 2013. At the time, Draghi said that the
Eurozone was just on a disinflationary trend (falling
inflation rates), while risks of deflation (falling prices)
were, however, subdued. Nearly two years later,
inflation in the Eurozone has turned negative. This
report looks at what forces are dragging down inflation,
mainly in Europe, but also elsewhere. Is prolonged
deflation a real threat for the Eurozone?
It is worth highlighting that the Eurozone has been in
deflation before. As Figure 1 shows, having remained
remarkably steady and close to the ECB’s 2% ceiling in
the first eight years of the euro’s life, inflation climbed
sharply above 4% in 2008, before dropping equally
sharply and entering negative territory in 2009. That
bout of deflation lasted only five months, however, and
inflation then rose quickly back to 3% before embarking
on its latest long descent.
Most consumers would, of course, regard falling prices
as good news, given the boost to their spending power.
After all, the burst of deflation in 2009 arguably
contributed to the subsequent global recovery by
boosting consumer spending. What’s more, it is
1
.Figure 1: Eurozone CPI, Core Inflation and ECB
inflation target
in February, as gasoline prices rose for the first time in
eight months. However, with oil prices having declined
again in recent weeks, there is a chance that inflation
could dip into negative territory over the next couple of
months if oil prices remain at current levels. However,
this deflation is not necessarily something to worry
about – it is ‘good deflation’. For a net importer of oil like
the US, lower gasoline prices are a good thing.
Moreover, with the real economy doing well, there is
little danger that this temporary bout of falling energy
prices will develop into a more insidious debt-deflation
spiral. Furthermore, excluding food and energy prices,
core consumer prices are well anchored and increased
by a moderate 0.2% mom in February, pushing the
annual rate of core inflation to 1.7% yoy. Admittedly,
that is still below the Fed's 2% target, but it is currently
being depressed by the indirect pass-through of lower
energy prices and the stronger dollar. As those effects
fade, core inflation should rebound to target early next
year.
Source: Bloomberg, as of 24 March 2015
In December 2014, Eurozone inflation turned negative
to -0.2% year-on-year (yoy) for the first time since
October 2009, falling further in January (-0.6% yoy).
However, latest figures show February’s headline
inflation at -0.3% yoy. In line with the recent drop in oil
prices, the main drag came from energy price inflation
(-7.9% yoy). Core inflation (defined as headline
excluding energy, food, alcohol & tobacco) was stable
at 0.7% yoy in February. The breakdown showed that
the decline in headline inflation was broad-based across
the Eurozone, with 16 out of 19 countries reporting a
negative inflation rate. Only Malta (+0.6% yoy), Italy
(+0.1% yoy) and Austria (+0.5% yoy), listed a positive
inflation rate.
Furthermore, in the US there appears to be little risk of
the current temporary bout of deflation becoming
entrenched. Breakeven inflation rates have rebounded,
as have inflation expectations. In addition, the faster
pace of wage gains in the US coupled with sharply
lower oil prices could underpin stronger consumer
spending that should eventually lead to higher inflation.
So in the US, deflation is less of a concern in our view,
but a severe negative economic shock could trigger
prolonged deflation.
In the US, inflation has also been steadily falling and
since its peak around mid-year 2014, headline CPI
inflation has fallen from 2.1% to 0.8% on a year-on-year
basis. PCE inflation has also plummeted, falling from
1.7% yoy to 0.8% yoy during this time. These sharp
declines have been driven largely by a 50% drop in oil
prices over the past year.
Figure 3: US breakeven inflation rates and US inflation
expectations
Figure 2: US CPI and Core Inflation
Source: Bloomberg, as of 24 March 2015
Source: Bloomberg, as of 24 March 2015
The latest data shows that US consumer prices rose
0.2% month-on-month (0.0% yoy) in February, after
technically falling into ‘deflation’ in January. The -0.7%
mom (-0.1% yoy) decline in consumer prices in January
was entirely due to a massive 18.7% mom plunge in
gasoline prices but the drag from energy prices faded
Source: Bloomberg, as of 24 March 2015
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Concerning trends in inflation in Asia
.
Figure
5: Main contributions to Eurozone inflation
However, deflation risk is no longer an issue confined to
the developed world. Within Asia ex-Japan, producer
prices in China have been in deflation for the last 35
months. This has very quickly spread across the region
with seven economies now experiencing deflation in
producer prices for most of the past three years. We
are also increasingly witnessing deflationary pressures
spreading quickly to headline inflation.
Figure 4: Eight out of 10 Asian ex Japan countries are in
PPI deflation
Source: Bloomberg, as of 24 March 2015
With oil prices doubling in 2009, however, the negative
impact on inflation quickly went into reverse and with
core price pressures remaining more robust, the
headline inflation rate rebounded sharply. Indeed, only
12 months after troughing at -0.6% in July 2009,
inflation was back close to the ECB’s 2% ceiling and its
subsequent further climb towards 3% even prompted
the ECB to raise interest rates twice in 2011.
Of course, falling oil and energy prices have also played
an important part in the latest drop in inflation and it is
worth noting that core and food price inflation are low
from a historical perspective. During the summer of
2014, food price inflation turned negative for the first
time since the financial crisis, while core inflation has
balanced around its new historical low of 0.6% since
September.
Source: CEIC, Jan-15 data for China, India, Korea, Taiwan and
Thailand. Sept-14 data for Hong Kong and Dec-14 data for the other
countries.
In many emerging Asian economies, last year’s
collapse in oil prices is still feeding through into lower
inflation but, for the vast majority, the risk of a prolonged
period of deflation is low in our view. In most cases
deflation is unlikely to become ingrained because
income growth is rapid in Asia and there is scope to
loosen monetary policy further. Another reason why
deflation is likely to be short-lived is that these
countries’ currencies have generally weakened since
the start of the year. This should partly offset the impact
of lower energy prices on inflation rates.
Deflationary pressures are now broader
Although energy effects have been the primary
downward force, deflationary pressures are generally
broader than they were back in 2009. Not only is core
inflation lower than it was then (+0.7% versus a low of
+0.8%) but more components of the CPI have entered
negative territory. Key components such as household
goods, communication, and recreation & culture all
have low or negative inflation.
Figure 6: Eurozone inflation by key sectors - June 2009
and December 2014.
What has caused the fall in Eurozone
inflation and will the latest bout of
deflation be just as brief as the last one?
A key issue here is what has caused the fall in
Eurozone inflation. The chart below sheds light on this
by showing the contributions to annual inflation of the
three key components that are energy, food, and core. It
shows that the 2009 bout of deflation was very strongly
driven by a deeply negative contribution from energy
prices, reflecting the sharp drop in oil prices from over
USD 130 per barrel in mid-2008 to just USD40 per
barrel by the end of that year.
Source: Eurostat, as of March 2015
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Inflation expectations have fallen markedly which
could give rise to prolonged deflation
Figure 8: Falling prices make debt burdens harder to
service
Another rather less comforting development is the fact
that the drop in inflation appears to have caused
inflation expectations to become distinctly detached
from the ECB’s 2% target. For example, as the chart
below shows, the implied market expectations for
consumer price inflation has fallen markedly over the
past year.
Figure 7: Eurozone Inflation Expectations
Source: Bloomberg, as of March 2015
2. The second risk is that a surge in debt defaults
drives asset prices lower, particularly property and other
assets used as collateral, further increasing the fragility
of the financial system. This in turn, could lead to an
even more catastrophic decline in economic demand.
Admittedly, the chart shows that the same measure
dropped equally sharply back in 2009, only to rebound
just as quickly when inflation itself picked up again. But
if deflation lasts longer this time – if only because
energy effects are not so quickly reversed – it will create
a risk of prolonged deflation, where the danger of a
more permanent shift in inflation expectations could
feed back into lower wage growth and a delay in
consumer spending could presumably increase.
3. The third risk is that expectations of ever-falling
prices become entrenched and a debt-deflation spiral
develops. This could encourage households to delay
spending, in the hope that they will eventually be able to
buy goods more cheaply. It could also prompt
companies to cut back on investments, for fear that
future returns will be lower. This sort of deflationary
spiral was avoided in 2009 partly because major central
banks responded with bold monetary easing to boost
inflation expectations and keep real interest rates
positive. But with nominal interest rates now near zero,
they have much less room for manoeuvre.
What are the risks of prolonged deflation
in Eurozone?
Who is most at risk in a prolonged
Eurozone deflationary environment?
If there is a severe negative economic shock, the risk of
prolonged deflation in the Eurozone could rise, and past
experiences of deflation suggest prolonged deflation
may significantly harm economic activity.
Not all Eurozone countries are expected to face the
same issues in a prolonged deflationary environment.
Heavily-indebted economies with high unemployment,
low-trend real growth and already low expectations of
inflation are particularly vulnerable to deflationary
spirals, as well as countries that have a large output
gap. To create a list of the countries most likely to be
impacted, the IMF in its World Economic Outlook
October 2014 publication selected the Eurozone
countries that have a budget deficit larger than 3.0%.
The forecast output gap in 2014 for those countries was
also noted. The IMF then ranked the countries for both
variables, and added the two results to rank the
countries again, based on this combined score. That
final ranking was thus based on an unweighted average
of the other two ranked scores.
Source: Bloomberg, as of 24 March 2015
There are three potential risks if deflation becomes
entrenched:
1.The cost of servicing existing debt rises as inflation
falls. Falling inflation leads to higher real interest rates
as nominal rates are often fixed. So rather than simply
boosting spending power, falling prices may lead to
outright declines in nominal incomes – including wages,
profits and government revenues. This means that the
current low rates of inflation in the Eurozone are
increasing member countries’ already high public and
private debt levels. Rising debt-service costs may in
turn reduce consumer spending and business
investment.
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Lessons from Japan
Those most susceptible to lowering prices were
generally the peripheral countries that are currently
working to recover from the crisis and to regain
competitiveness respective to core countries, as shown
in Table 1. But one of the core countries, France, also
made the list. Taking into account the weak economic
growth in France and Italy over the first half of 2014,
these two are especially likely to face further
disinflationary pressure.
Japan’s case was characterised by a series of
negative and mutually reinforcing factors, some of
which are shared by the Eurozone. At the end of the
1980s, Japan saw an asset price bubble, prompting
the Bank of Japan (BoJ) to step in with sharp
monetary tightening. This caused the stock market to
crash, asset prices to plummet and the economy to
fall into recession. Consequently, non-performing
loans increased dramatically and credit became
extremely constrained. In the absence of an
expansionary monetary policy from the Bank of Japan,
deflation set in a couple of years after the crash.
Figure 9: Vulnerability rankings
Overall
Country
Rank
1
2
3
4
5
6
7
8
Spain
Portugal
Cyprus
Greece
Italy
France
Ireland
Slovenia
Fiscal balance
Output gap
2014 (% of
2014 (% of GDP)
GDP)
-5.7
-5.0
-9.2
-3.5
-5.0
-3.4
-3.6
-9.4
-3.3
-4.3
-4.0
-2.8
-4.7
-2.5
-4.0
-3.3
This shows just how harmful entrenched deflation can
be for the economy. Following the bubble’s burst,
Japanese corporations held high levels of debt, which
remained the same in nominal terms. Then, as prices
fell, the real value of corporate debt increased. To
avoid further increases in debt, these firms reduced
investment which in turn lowered growth, deepening
the economic downturn, increasing unemployment
and widening the output gap. Japan’s greatest
weakness was the policy response to its economic
woes, including unsuccessful experiments in
quantitative easing.
Source: IMF data, World Economic Outlook as at October 2014
Deflation is rare
Persistent deflation, with prices falling over many years,
is an exceedingly rare phenomenon, at least in the postWorld War II era. There have been only 14 occurrences
of deflation in the past 54 years, of which only three
(including Japan) occurred in developed economies.
With the exception of Japan – which has had two
separate periods of deflation since the late 1990s – all
of the remaining examples of deflation were in countries
operating fixed exchange-rate regimes
Japan is still suffering from effects of the ’Lost Two
Decades’. Economic indicators finally seem to be
returning to healthier levels as Abenomics sets in,
with its ’three-arrowed’ reform programme (fiscal
stimulus, monetary easing and structural reform) to
address chronically low inflation, decreasing worker
productivity, and an ageing population. However, the
implementation of structural reform has been delayed.
There are some similarities in the causes of deflation
in Japan and the recent experience in parts of Europe.
Like Spain and Ireland, Japan saw a significant
property bubble that, when it burst, threw the
economy into recession. However there has not been
a Europe-wide property bubble. Like Japan, European
banks were slow to write off bad loans, and credit
growth has stagnated.
Figure 10: Deflation is unusual in advanced economies
DM
Hong Kong
Japan (x2)
Malta
EM
Argentina
Bahrain (x2)
Libya (x2)
Niger
Saudi Arabia (x2)
Senegal
Syria
However, in Europe the stock market bubble was not
as large and its bursting was part of an international
phenomenon in the wake of the Lehman collapse.
Furthermore, in the absence of exchange rate
devaluations, crisis-hit countries reacted with a raft of
reforms to regain competitiveness, including wage
and price moderation and, where possible, a shift
from labour taxes to consumption taxes. This socalled “internal devaluation” aims to depreciate the
real effective exchange rate by realigning labour costs
with productivity, thereby restoring competitiveness
and, as a result, unwinding current account deficits, a
Source: OECD and IMF. Deflation definition: 3years or more of negative inflation
Sample 1960-2013 (54 years), 180 countries, annual CPI inflation
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first step toward a sustainable growth path for these
economies.
This is also supported by our own Core Inflation
Leading indicator model (based on the output gap, trade
weighted euro and a survey measure of inflation
expectations), which expects core inflation to remain
stable. If that is the case, deflation will remain an
energy-driven and relatively short-lived phenomenon.
Countries in which the internal devaluation has been
the most successful are generally those where
structural reforms have also been readily
implemented such as Ireland, Portugal, Spain, and, to
some extent, Greece. By contrast, France and Italy
have fallen behind in the reform race.
Indeed, it could readily be classified as “good deflation”
insofar as it will boost private consumption through
higher real wage growth and could therefore help to
revive the Eurozone’s flagging economic recovery.
Added to this, low core inflation primarily reflects low
inflation in non-energy industrial goods, while service
price inflation, which is highly dependent on labour as
an input and closely related to wage growth, has
remained relatively stable.
Overall, the fact that Japan is the only relevant
(modern) example provides some reassurance that
deflation is not something that occurs easily or
frequently in developed countries.
Figure 11: Japan CPI and Core CPI inflation
Figure 13: Eurozone core goods and services Inflation
Source: Bloomberg, as of 24 March 2015
What about core Eurozone inflation?
Where will core inflation go?
Source: Bloomberg, as of 24 March 2015
Spare capacity has also exerted downward
pressure on core inflation
Just how deep deflation becomes and how long it lasts
will depend most importantly on the behaviour of core
inflation. A quick look at the past behaviour of core
inflation would appear to provide some reassurance. As
the chart below shows, it has tended, not surprisingly, to
be more stable than the headline rate, fluctuating in a
much narrower band and at a record low of -0.6% yoy in
January 2015; it is already at the bottom of that band.
High levels of spare capacity have also exerted
downward pressure on consumer prices in the
Eurozone. Eurozone core inflation (the ECB has little
control over food and energy prices) is highly correlated
with the output gap, which is the difference between
how much an economy is producing and how much the
economy could produce. A lot of spare capacity in
factories or a lot of unemployed workers discourages
firms from raising prices because their competitors can
use their idle capacity or labour to produce more and
undercut them. The output gap is notoriously hard to
measure but an expanding output gap has usually
pushed core inflation down, and a narrowing output gap
has pushed core inflation up. Therefore, to avoid a
prolonged period of deflation, the output gap needs to
close and GDP growth to pick up. Based on estimates
from the OECD, the Eurozone’s output gap was quite
large at -3.3% in 2014, which means that core inflation
could pick up if the ECB’s QE programme succeeds in
boosting growth and closing the output gap.
Figure 12: Eurozone CPI and Core Inflation, ECB target
Source: Bloomberg, as of 24 March 2015
This might suggest that the general stickiness of prices
in the Eurozone will prevent core inflation from falling
any further over the coming months.
6
lower end of expectations. No French or German banks
were required to source more capital.
Figure 14: Output gap and 12 month change in core CPI
inflation
How can low inflation be addressed?
The tricky part is determining how to fight low inflation
and avoid prolonged deflation. With interest rates
already close to zero, standard monetary policy virtually
ceases to be effective. Over the last months, the ECB
has tried hard to ease financial conditions, using various
non-standard monetary policy measures, such as
providing ultra-cheap loans targeted to those banks that
lend to small and medium-sized enterprises, and
purchasing private sector assets (covered bonds and
asset backed securities).
Source: Bloomberg, as of March 2015
Finally, as an antidote to deflation, the European
Central Bank (ECB) rolled out its aggressive QE
program in March 2015. The package includes injecting
EUR 1.1 trillion through the purchases of government
bonds and private sector assets, worth EUR60 billion a
month, until at least the end of September 2016 or
when the inflation rate shows signs of improvement
towards its target. But QE in the Eurozone has arrived
late. The US is winding down the QE programme it
embarked on 6 years ago when low inflation rates first
started to raise alarm.
Wage pressures have been subdued in the Eurozone.
While Eurozone unemployment remains high, the fact
that the unemployment rate has stopped rising and
even fallen modestly over the last year suggests wages
could soon start to pick up from recent very low levels,
with corresponding potential upward effects on headline
inflation.
Even a quick look at the Eurozone’s monetary dynamics
might suggest that disinflationary pressure may soon
ease. The chart below shows the relationship between
broad (M3) money growth and CPI inflation with the
recent pick-up in M3 growth pointing to rising inflation
ahead. Furthermore, this might become clearer if the
ECB’s quantitative easing (QE) programme results in a
further pick-up in money supply growth.
The ECB’s QE programme reduces
headwinds to inflation
The ECB’s QE programme is expected to lift inflation
through various channels.
Figure 15: Eurozone inflation and M3
The first channel is the currency. On a tradeweighted basis, the euro depreciated significantly in
2014 (-6.0%) and this decline has accelerated since the
beginning 2015 (an additional 7.6%), following the
ECB’s announcement that it would purchase sovereign
bonds and increase its balance sheet further. Euro
depreciation should put upward pressure on inflation.
The lower exchange rate has already raised
manufactured import prices in H2 2014 by 1.9%,
according to Eurostat, and these are expected to
increase further in Q1 2015. This increase alone should
help lift core goods price inflation in the first half of the
year. The weaker EUR also will lift food-price inflation
this quarter and dampen the impact of lower oil prices.
Source: Bloomberg, as of 24 March 2015
Other factors also suggest that the Eurozone could
avoid a prolonged downward slide into deflation. For
instance Eurozone business and consumer confidence
has picked up since the dip in September while
household savings as a proportion of gross disposable
income has continued to edge lower since the start of
the year, suggesting that spending could be set to rise
in the coming months and boost aggregate demand.
The largest Eurozone banks also appear to be in better
shape than expected, with capital shortfalls identified by
the ECB’s latest asset quality review coming in at the
The second channel at play is inflation
expectations. The ECB’s QE programme should
support inflation expectations as it signals the ECB is
committed to its mandate of maintaining price stability.
Hence, the current monetary easing should support
wage growth if the stimuli convinces wage earners that
they should expect 2% inflation. Related to this, easing
should limit second-round effects and the risk of a
dangerous kind of deflation, where wages follow
inflation lower.
7
as they did in 2009/10, then it is likely that headline
inflation will also rise again quickly and the current burst
of deflation might prove to be just as brief as the last
one. Even if the oil price does not increase but remains
at its current level, headline inflation should turn positive
towards the end of this year. However, the price
dynamics will continue to be limited by a large negative
output gap, high unemployment and the absence of
wage pressures. Furthermore, with Eurozone inflation
already in negative territory, investors could remain
sensitive to any negative exogenous shocks, for
example from Greece or from the situation in Ukraine
and Russia, that may put further pressure on the
outlook for inflation and growth.
The last channel is the growth outlook. The ECB
expects GDP to grow by 1.5% in 2015 (up from 1% in
the December projections), 1.9% in 2016 (up from 1.5%)
and 2.1% in 2017, and QE poses upside risks to this
view.
Investment Implications
The obvious question is: will QE make a difference,
especially as government bond yields in Europe are
already so low? There is certainly scope for bond yields
in peripheral Europe to fall further, and for those lower
interest rates to feed through to the real economy via
the banking system. However, we feel that ECB’s QE
programme will eventually benefit the Eurozone
economy by reducing the risk of prolonged deflation and
that the main impact will come through from the weaker
euro. This should make European exporters more
competitive internationally and provide a boost to GDP
and corporate earnings growth, and therefore be a
positive for risk assets such as European equities.
Our long-term investment views have not changed; we
continue to favour most riskier assets, such as equities,
over perceived safe-haven developed market
government bonds. The ECB QE programme supports
the view that the world’s major developed market
central banks are ready and willing to provide monetary
stimulus if necessary to support their economies and to
ward off entrenched deflation.
Looking ahead, we expect oil prices to eventually
increase from current very low levels. We are not there
yet, but if they rebound eventually over the coming year
Rabia Bhopal
Macro & Investment Strategist
Macro and Investment Strategy team
Michael Hampden-Turner
Senior Macro & Investment Strategist
Julien Seetharamdoo
Chief Investment Strategist
Michael Hampden-Turner is a Senior Macro
and Investment Strategist based in London
having recently joined HSBC Asset Management
in December 2014.
He previously held global macro, asset allocation,
fixed income and credit strategy roles at Citigroup
and RBS over a twenty year career both as a
publishing top down strategist and a desk
analyst. He studied at Trinity College, Cambridge
and Harvard University.
Julien Seetharamdoo is Chief Investment Strategist
within HSBC Global Asset Management’s Macro
and Investment Strategy team where he provides
analysis and research on the key issues facing the
global economy and asset markets. Prior to joining
HSBC, Julien has worked for Coutts & Co, RBS and
Capital Economics. He holds a first-class degree in
Economics from Cambridge University and a PhD in
Economics from the Management School, Lancaster
University focusing on the implications of the
European Monetary Union.
Rabia Bhopal
Macro & Investment Strategist
Renee Chen
Senior Macro & Investment Strategist
Rabia Bhopal is a Macro and Investment
Strategist and provides analysis and research on
the key issues facing the global economy and
asset markets, with particular focus on Frontier
Markets. Rabia has been working in the industry
since 2003. Prior to joining HSBC in 2012, Rabia
held Economist roles at Standard & Poor¹s,
Lloyds TSB Corporate Markets, Financial
Services Authority and the Economist Intelligence
Unit. She holds a degree in Economics from
Brunel University in London.
Renee Chen joined HSBC Global Asset
Management as Macro and Investment Strategist in
April 2012. Prior to this role, she held Economist
roles at Macquarie Capital Securities, Nomura and
Citigroup and has over 14 years’ experience in
economic and policy research. Renee holds a
master’s degree in International Affairs and
Economic Policy Management from Columbia
University, New York and an MBA in Finance and
Investment from George Washington University,
Washington DC.
Shaan Raithatha
Macro & Investment Strategist
Herve Lievore
Senior Macro & Investment Strategist
Hervé Lievore is a Senior Macro and Investment
Strategist based in Hong Kong. Before joining
HSBC, he spent five years at AXA Investment
Managers in London and Hong Kong as an
economist and strategist, covering Asia and
commodities. He was also involved in the firm’s
tactical asset allocation committees. He started his
career 18 years ago at Natixis in Paris, where he
mostly covered Asian markets.
8
Shaan is a Junior Macro and Investment
Strategist within HSBC Global Asset
Management’s Macro and Investment Strategy
team. Prior to this role, he spent 18 months on
the HSBC Global Asset Management Graduate
Programme working as an analyst on both the
Global Emerging Markets Equity and Equity
Quantitative Research teams. Shaan holds a
bachelor of arts degree in economics from the
University of Cambridge.
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recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The
views and opinions expressed herein are those of HSBC Global Asset Management Macro & Investment Strategy Unit at the time
of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition.
Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences,
time horizon, and market liquidity.
The value of investments and the income from them can go down as well as up and investors may not get back the amount
originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any
forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where
overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up.
Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some
established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly,
have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Mutual
fund investments are subject to market risks, read all scheme related documents carefully.
We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe
to be reliable but which have not been independently verified.
HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above
communication is distributed by the following entities: in the UK by HSBC Global Asset Management (UK) Limited, who are
authorised and regulated by the Financial Conduct Authority; in Jersey by HSBC Global Asset Management (International) Limited
which is regulated by the Jersey Financial Services Commission for Fund Services & Investment Business and is licensed by the
Guernsey Financial Services Commission for Collective Investments & Investment Business. HSBC Global Asset Management
(International) Limited is registered in Jersey under registration number 29656 with its registered office at HSBC House,
Esplanade, St Helier, Jersey JE4 8WP. HSBC Bank plc acts as settlement agent to HSBC Global Asset Management
(International) Limited. Approved for issue in France by HSBC Global Asset Management (France), a Portfolio Management
Company authorised by the French regulatory authority AMF (no. GP99026); in Germany by HSBC Global Asset Management
(Deutschland) which is regulated by BaFin; in Switzerland by HSBC Global Asset Management (Switzerland) Ltd; in Hong Kong by
HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission; in Canada
by HSBC Global Asset Management (Canada) Limited which is registered in all provinces of Canada except Prince Edward Island;
in Malta by HSBC Global Asset Management (Malta) Limited, which is licensed to provide investment services in Malta by the
Malta Financial Services Authority; in Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 6 Front Street,
Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority; in India by HSBC Asset
Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India; in United Arab Emirates, Qatar,
Bahrain, Lebanon by HSBC Bank Middle East Limited which is regulated by Jersey Financial Services Commission and Central
Bank of United Arab Emirates; in Oman by HSBC Bank Oman S.A.O.G Regulated by Central Bank of Oman and Capital Market
Authority, Oman; in Latin America by HSBC Global Asset Management Latin America. and in Singapore by HSBC Global Asset
Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore. HSBC Global Asset Management
(Singapore) Limited, or its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may,
at anytime, have a position in the markets referred herein, and may buy or sell securities, currencies, or any other financial
instruments in such markets. HSBC Global Asset Management (Singapore) Limited is a Capital Market Services Licence Holder
for Fund Management. HSBC Global Asset Management (Singapore) Limited is also an Exempt Financial Adviser and has been
granted specific exemption under Regulation 36 of the Financial Advisers Regulation from complying with Sections 25 to 29, 32,
34 and 36 of the Financial Advisers Act).
Copyright © HSBC Global Asset Management Limited 2015. All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of HSBC Global Asset Management Limited. FP15-0557 (expiry date: 26/03/2016)
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