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Benedicte Gravrand, Opalesque Geneva:

HSBC believes that market volatility will continue in the short term, that any reduction in the Fed’s monetary stimulus would be gradual and that this would support equity markets in the medium term. While the bank remains cautious on fixed income, cash, commodity prices and emerging market securities, it is overweight on alternatives such as hedge funds, real estate and private equity to add diversification to portfolios.

According to HSBC Private Bank's Quarterly Investment Outlook Q3 2013, "bond markets remain the largest global asset class, and when US Treasury prices move, investors pay attention." Indeed, when bond yields rose in May and June, this caused a sell-off in most asset classes. Investors expect bond yields to rise when the Fed’s tightening starts, and this has lead to higher real yields and lower breakeven inflation expectations. Since the Fed announced a tapering of QE3 if market conditions continue to improve, markets are actually concerned about improvements in US economic conditions. But the bank believes the Fed will not act prematurely, that any action will be gradual, and that benchmark interest rate should remain anchored for longer than expected. As bond yields had been falling since 1981, many believe it is the end of a 32-year bull bond market, writes Willem Sels, UK Head of Investment Strategy at HSBC Private Bank in the outlook report.

"It is interesting that markets are s......................

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