HSBC Cuts Global Equities to Neutral on Middle East Tensions, AI Regulation Risk

HSBC downgraded its global equity allocation to "neutral" from "overweight" on Monday, citing renewed Middle East geopolitical tensions and rising concerns over potential AI regulation ahead of U.S. midterm elections. The bank simultaneously raised developed-market sovereign bonds to "overweight" from "underweight," signaling a shift toward caution. HSBC said it had held an overweight equities and underweight sovereign debt stance since mid-March, but shifting market themes have made that level of conviction difficult to maintain. The U.S. midterms are a key variable. HSBC said a Democratic victory could heighten AI regulatory worries and slow the sector, supporting sovereign bonds, while a political deadlock could ease fiscal spending concerns and benefit government debt. The bank also cautioned that betting markets may be too confident in a "blue wave" outcome. HSBC grew more cautious on the eurozone, citing France-related concerns, and on emerging markets, where bearish regional AI investment sentiment weighed on conviction. It cut its gold allocation from overweight, without specifying the new rating, and raised crude oil to overweight.