Investment Weekly: Stocks on sale?

20 Apr 2026

Everyone is watching index levels, but valuations are what really matter.

Stock indices have been resilient through the oil shock. But the real adjustment has been taking place under the surface – in market multiples and risk premia. This is showing up in three notable ways:

First, in the US, the combination of weaker stock prices, alongside a likely strong Q1 corporate earnings season, and an upgraded 2026 profits scenario – means the market multiple has dropped to around 20x (see chart).

Second, that story is even more pronounced in emerging markets. The oil shock has meant outflows and weaker equity performance but, even so, EMs have held up much better this time than in prior risk-off phases, like 2022. At the same time, profits growth remains spectacular in South Korea and Taiwan, supported by the AI memory supercycle (80% profits growth expected in South Korea in 2026, see Page 2). As a result, the overall EM multiple has compressed to 11x.

Third, in a supply-shocked world, with stagflation vibes lingering, it’s important to factor interest rates into the equation – and that takes us to the equity risk premium. Resilient profits and higher earnings yields have outpaced the rise in bond yields so far. US real rates, as measured by long-term Treasury inflation-protected securities, are steady year to date, at around 1.9%. That means the equity premium has moved higher, especially in some EMs.

The bottom line is that expected returns have moved higher, even if that’s hard to see from price charts alone. The real question is where risk is being over-, or under-rewarded.

April’s recovery in risk appetite has coincided with a big drop in the US dollar. This leaves year-to-date performance essentially flat, maintaining the longer-term “dollar-down” trend. This recent reversal is welcome news for US sectors with substantial foreign revenue streams, such as big tech. It is also a highly positive development for emerging market assets, whose phenomenal performance last year was significantly bolstered by dollar weakness.

Given ongoing geopolitical and macro uncertainty, there is a strong chance that market volatility will pick up again. However, March’s market action suggests that any resulting boost to the dollar could be fairly subdued. Indeed, the trend over the past couple of years indicates that the dollar remains relatively static during episodes of volatility. This represents a major regime shift. It may reflect gradual de-dollarisation, mounting concerns over US public finances and institutional integrity, and a growing belief that the Fed is hamstrung in responding to inflation shocks – a stark contrast to its more aggressive stance in 2022.

With the broadening out narrative somewhat dependent on sustained dollar weakness, recent market action proves that this scenario remains plausible in 2026.

Overall, Q1 profits should be good, but uncertainties around tech and AI, geopolitics, and the consumer, mean it’s worth being cautious.

Even so, analysts are constructive on the 12-month profits outlook. There have been upward revisions in recent weeks, and chip heavyweights in both markets have beaten Q1 expectations. Infotech sectors in both markets (price/book: South Korea 3.6x, Taiwan 7.0x) trade at a relative discount to developed market peers (P/B: 10.8x). With the combined weight of South Korea and Taiwan in the MSCI EM index having risen to a whopping 41%, and mainland China’s tech innovation remaining impressive, EM exposure in portfolios looks more like a potentially better-priced play on the AI trade rather than a high-beta cyclical one.

Overall, the biggest growth risks lie in a broader conflict, geopolitics, trade policy, and AI disappointments. But there could be upside from AI productivity gains, EM structural reforms, and easing trade tensions. This macro uncertainty – and the wide range of factors influencing the outlook – could remain a source of market volatility.

Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, Factset. Data as at 7.30am UK time 17 April 2026.

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index.  Source: HSBC Asset Management. Data as at 7.30am UK time 17 April 2026.

Global stocks rose last week on growing hopes of an end to conflict in Iran. In developed markets, US indices rose sharply, recovering most of the losses since the conflict. European indices followed, and notably Japanese indices outperformed most DM markets. In emerging markets, LatAm stocks led gains, with some EM Asian stocks weakening. In government bonds, yields were mostly higher on the week as risk-on sentiment increased. Similarly, investment grade and high yield credit spreads narrowed. In FX, the US dollar weakened against a basket of major currencies. In oil, Brent crude remained stuck in a higher range despite positive geopolitical developments. In precious metals, gold was marginally higher while silver rallied.