It is premature to increase holdings of “risk assets,” argues HSBC Private Bank, as it outlined reasons why it is bearish on equities for the next three months and bullish on bonds over that period before moving to a more neutral stance in both assets over the next six to 12-month period.

Setting out its views for 2012, the private banking arm of HSBC said its “core case” is a prediction of a shallow recession in the eurozone (-1.0 per cent GDP) but the risks are weighted on the downside. In the case of the US, where recent economic news has been more encouraging, there are still risks, it said, giving a growth forecast of 1.5 per cent. For example, if the Republicans win the presidential elections in November, this could be followed by a period of fiscal tightening, which could hit growth, the bank said.

As well as keeping wary of eurozone debt, HSBC Private Bank said that it favoured some emerging market bonds but took a “very selective” approach to these assets, as well as equities and currencies in these regions.

“We focus on countries with current account surpluses and/or solid domestic demand, i.e. Indonesia (equity, currency and debt), Malaysia (equity, currency, debt), the Philippines (currency), Brazil (currency and debt) and Columbia (currency). In the West, we believe that eurozone uncertainty will support [the dollar] and [yen] as the two most liquid among the few remaining safe haven currencies,” the bank said.

In exploring how to achieve wealth preservation and income strategies over the coming 12 months, HSBC Private Bank favours a small overweight stance on US Treasuries in the short run, even though bond yields are currently low, because such securities represent the ultimate safe haven asset. It also favours UK gilts and German bunds as wealth preservers. On the income-generation side, the bank is positive on investment-grade corporate bonds and selective emerging market hard currency and local currency debt, as well as volatility strategies contained in structured products.

Among its other current asset allocation views, HSBC Private Bank said it is positive on the dollar and upbeat about emerging market currencies in the long term, although it has become more selective. It is neutral on hedge funds and commodities.