Not long after that, despair turned into relief as the announcement of 90-day reprieves on President Donald Trump's so-called reciprocal tariffs a week later caused a big rebound in equity markets.
Moreover, the US and China reached an agreement for a 90-day scaleback on each other's reciprocal tariffs on May 12, further boosting investor sentiment as equity markets climbed following the announcement.
William Sels, HSBC's global chief investment officer, says while the reprieve of tariffs has calmed the markets, investors need to remember that volatility has not ended.
"There are still obvious challenges. We don't know what the final trade deals will look like and have not yet seen the economic effects of the tariffs unfold. Trade frictions will probably dampen growth and push up prices, and the uncertainties may cause businesses to freeze big investments," says Sels during a discussion on the bank's 3Q2025 outlook.
See also: US-China trade truce: Reprieve or realignment?
Heading into 2H2025, Sels expects slowing economic growth and continued two-way volatility from uncertain policy and geopolitical headlines, albeit less pronounced immediately following Liberation Day.
The bank's core scenario leans towards tariffs being negotiated down but remaining at 10% minimum, with tariffs on China at about 30%–50%, with some exemptions for specific sectors, but overall still resulting in a growth slowdown. "While these challenges will probably lead to below-normal economic growth, we do not expect to see a recession or stagflation," Sels adds.
Hence, HSBC re-emphasises the importance of diversification for resilience amid the uncertainty and advocates for a portfolio strategy centred around slow but steady growth, moderate rate cuts and a focus on quality investments.
See also: Beyond the trade truce: Why Chinese stocks deserve a nuanced approach
A Resilient Asia
Navigating global trade uncertainty, HSBC urges clients to gain exposure towards Asia’s domestic resilience and structural growth opportunities.
The bank focuses on quality stocks and bonds in domestically oriented sectors exposed to themes, such as China's artificial intelligence (AI) innovation, Asia's accelerating corporate governance reforms, rising return-on-equity (ROE) trend and domestic consumption boom.
China's push to become self-sufficient in its AI hardware technologies has helped brew an AI investment theme within the region, with AI beneficiaries in other sectors also presenting fresh investment opportunities.
"DeepSeek's open-source innovation is supercharging a new wave of AI investment boom in China. We favour AI enablers and adopters, including innovation champions in the internet, e-commerce, social media, software, smartphones, semiconductor, autonomous driving and robotics sectors," HSBC's outlook report states.
Moreover, the cheap valuations of Chinese equities offer an attractive opportunity to global investors.
However, Sels notes that the Chinese government will have to follow through with adequate fiscal stimulus to support and revive domestic consumption to drive economic growth.
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As one of the fastest-growing economies in the world, the largely domestic Indian economy has also been favoured not only for its strong growth story in themes such as financial services and telecommunications services but also as a "safe haven" alternative for investors seeking to diversify which can be attributed to the country's low exposure to tariffs.
HSBC expects the country's strong growth, new trade deals and increasingly diversified economy to continue to lift earnings and increase domestic support for local equities. India's rapid digitalisation and ambition in manufacturing led HSBC to believe that India would be one of the winners of the region's supply chain reorientation.
According to the Reserve Bank of India's (RBI) annual report for 2024–2025, the country's economy is expected to retain its title as the fastest-growing major economy for 2025–2026, especially on the back of a pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the government's continued focus on capital expenditure.
The RBI has projected real gross domestic product (GDP) growth at 6.5% for 2025–2026, roughly equalling the economy's performance during 2024–2025.
HSBC also believes investors can look for resilient and defensive equity returns by positioning in quality companies, which enhance ROE by paying high dividends and increasing share buybacks.
Within Asia, the Singaporean and Hong Kong stock markets will still be favoured by yield seekers, with both markets offering attractive average dividend yields of about 4% compared to the 1.9% yield of MSCI World.
The bank advises investors to be selective and pick industry champions within the Asian markets who can both provide a good ROE and are positioned to withstand global headwinds. HSBC favours Asian heavyweights in the technology, financial and consumer discretionary sectors.
Diversifying in fixed-income
With the onset of uncertainty in policy still to come, HSBC cites that there is a mild probability that upcoming economic data, especially data coming out of the US, will be on the downside and should boost the government bond market.
The bank places the focus on longer duration targets (7–10 years) on developed market (DM) bonds, with favour skewed towards sovereign debt in the UK and corporate investment-grade (IG) markets, with a preference towards UK and core Eurozone corporate IG markets.
UK government bonds or gilts are preferred over other DM sovereign debt, given growing concerns over a weak UK growth outlook and looser labour market conditions, which should support UK gilts.
In Asia, the low-inflation environment allows plenty of room for monetary easing from Asian central banks in response to the tariff challenge threatening slowing growth. HSBC believes these factors will drive returns on Asian US-dollar (USD) IG bonds.
"We expect the Asian credit markets will benefit from global diversification flows and strong local investor demand for resilient income. We favour Asian financials, Indian local currency bonds, Chinese hard currency corporate bonds, including Chinese technology, media and telecom issuer, and Macau gaming bonds." the report states.
The discussion over the prospect of de-dollarisation has been active for the US over the past few months. The greenback depreciation has raised concerns over exchange-rate risks, but HSBC still believes allocating towards the US remains a good diversifier.
“Overall, we continue to see corporate IG credit, including USD IG bonds, as a good way of diversifying multi-asset portfolios and generating income by locking in elevated yields. Active credit selection remains relevant considering the uncertainty around the US administration’s policy measures and the endgame in tariff deployment.”
Furthermore, it is worth remembering that the US Treasury market is the largest and most liquid market in the world, representing 50% of developed market sovereign debt and that global trade is often expressed in USD, meaning proceeds must be recycled into USD assets, emphasising the great importance of the USD as the currency of the largest market in the world.
“Any change in the importance of USD assets will take years to materialise, not days,” says HSBC.
Exploring alternatives
At the height of volatility in early April, a big sell-off of US equities and treasury bonds caused both assets to trend downwards together, deviating from the usual trend of bonds and equities moving in opposite directions.
This prompted investors to look elsewhere for diversifiers to the two traditional assets to protect and preserve wealth during this period.
Gold has been referred to as a "safe haven asset" during times of uncertainty and volatility. Gold prices reached a peak of about US$3,500 ($4,499.25) during the height of uncertainty over tariffs during April before pulling back slightly to the current levels of about US$3,350 after the announcements of 90-day scalebacks on reciprocal tariffs from the US brought back renewed enthusiasm for risk-on assets like equities.
With a potential further weakening of the USD, HSBC views gold as a substitute for the USD in portfolio diversification.
Historically, hedge funds and private markets have also displayed smaller drawdowns and quicker recoveries than equities.
According to HSBC data, the hedge fund market’s biggest drawdown since 2005 was 11.1% on the downside back during the 2008 Global Financial Crisis and the market only took three quarters to recover.
Global equities, meanwhile, experienced a drawdown of 49.3% on the downside at around the same time, taking 18 quarters to recover.
"Hedge funds have proved resilient during the tumultuous period witnessed recently, with typical balanced hedge fund portfolios insulating against 90% of the downside in market moves over the period to date. Certain strategies have found the recent period of uncertainty to be supportive of returns, namely equity market neutral strategies, which benefited from the volatility," the report states.
On the private market side, the prospects for private equity will largely depend on the outcome of tariff negotiations. Ongoing uncertainty has dampened deal activity, especially in mergers, acquisitions and initial public offerings. Nonetheless, signs that Trump’s administration may favour negotiation over confrontation could help steady the markets and restore investor confidence.
Similarly, while tariff uncertainty affects businesses involved in trade-reliant sectors like industrials, private credit investors remain protected, given the low historical default rates of such loans as most loans in the space are senior loans.
"In this current environment, it is important to focus on senior secured debt high in the capital structure, with conservative leverage. It remains imperative to be diversified across geographies, sectors and issuers, with limited exposure to any individual borrower," the report adds.
