HSBC 2025 second half outlook: Risk appetite returns, AI optimism, and a weak dollar could be key catalysts.

HSBC has provided an outlook for the second half of 2025 in a recently released research report. HSBC stated that the bank enters the second half of the year with a risk-seeking attitude, and high-frequency trading data shows a rebound in trading activity in the US market. The bank pointed out that despite signs of early release of demand, which may lead to weaker data later in the second half of the year, the market's sensitivity to tariffs has decreased. The bank also said that in the coming months, a new round of optimism around artificial intelligence and a weaker US dollar should be helpful. The bank recommended overweighting stocks/high-yield bonds/emerging market bonds. HSBC pointed out that the main feature of the first half of the year was high uncertainty, whether at the corporate, central bank, or political level. However, looking back at periods of significant economic policy uncertainty, the bank found that risk assets often rebound rather than further decline. The most pressing question for investors is what the next catalyst for an uptrend will be? HSBC stated that continued subdued sentiment and positioning are one possibility (i.e. "painful trades" continuing to rise). In addition, the catalyst could also be positive surprises in economic activity data (as growth expectations in the current market have already been significantly lowered), the return of optimism around artificial intelligence, and a weaker dollar potentially boosting second-quarter profits for US companies. Market betting also shows a weakening confidence in the US government's tax cut agenda. Therefore, if any agreement is reached before the summer, it could serve as another catalyst to drive risk assets higher in the short term - provided that long-term yields do not rise rapidly or disorderly. HSBC stated that these catalysts are mostly related to the US, but analysis shows that even a slight rise in the stock market is enough to drive other risk assets stronger. HSBC stated that downside risks for the market include the US labor market and US bond yields nearing a "danger zone." Just like in the past two years, initial jobless claims may rise in the summer. Although this increase is likely seasonal, the market may mistakenly interpret it as a true signal of economic weakness. Meanwhile, the "danger zone" level for the 10-year US bond yield is currently at 4.7%, and touching this level could trigger widespread selling of risk assets. HSBC stated that the bank is slightly overweighting stocks, and plans to further increase positions before the arrival of the second-quarter earnings season, especially in US stocks. In terms of stock allocations, the bank is overweighting emerging markets, European markets, and US markets. The bank continues to overweight emerging market bonds (especially local currency bonds) and high-yield credit bonds, while also using gold as a preferred hedge tool. In addition, the bank continues to underweight developed market interest rate products, especially US and Japanese government bonds.