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Markets overreacting to slowing quantitative easing: HSBC


20:43, July 05, 2013

LONDON, July 5 (Xinhua) -- Markets have overreacted to the likelihood that the U.S. Federal Reserve will taper its quantitative easing policy, or QE, HSBC said in its quarterly equity insights research released on Friday.

Global equity markets have been suffering significant setbacks since the Fed signaled monetary normalization on May 22. Its chairman Ben Bernanke has made it clear that tapering is data dependent, and that the Fed could even increase QE if growth were to weaken, said HSBC.

"The lesson of history is that the first tightening in a cycle -- as long as it comes because risks to growth have diminished, not because of inflation or structural worries -- typically causes only a short-lived correction in stocks," the bank said.

There was no change in HSBC's moderately positive view on equities. "We see earnings picking up. Momentum is improving and our top-down models point to around 10 percent growth this year," a statement said.

In the U.S., earnings revisions were strong and potential was seen for further upgrades. The bank cut emerging markets to underweight, as economists have turned more cautious. The bank has a neutral investment suggestion rating on Europe and Japan.

Among the various sectors, HSBC overweight IT, telecoms and financial, which have the strongest earnings momentum, but underweight industrial and healthcare.

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