“We have reviewed our allocation to limit the excessive risk,” said Patrick Ho, the bank’s chief investment officer for North Asia, pointing to rising uncertainty tied to Middle East tensions, energy security concerns and shifting global capital flows.
The bank has cut India to underweight from neutral, calling it the “most vulnerable” emerging Asia market due to energy prices, according to a Bloomberg report. The move comes as foreign institutional investors have dumped around $18 billion worth of Indian stocks in the last one and a half months since the Iran war began.
Ho’s team operates with a scenario-based risk management model tracking three potential outcomes: negotiation, escalation and results in between. Its current positioning reflects caution towards emerging Asian nations, where higher oil prices and a stronger US dollar pose a “double negative” for markets reliant on energy imports and foreign capital, he said.
The firm is looking at “which market or segment will suffer if the risk scenario develops and turns into reality,” Ho added.
Within equities, HSBC has turned more selective, favouring North Asia over India. South Korea and China stocks are better positioned to benefit from artificial intelligence investment, with stronger exposure to memory chips and upstream industrials, as well as more attractive valuations and earnings visibility, he added.
“We still think the AI story and the earnings broadening story will continue,” Ho said, even as elevated energy costs have raised questions about whether higher oil prices could hurt profitability timelines or weigh on data centre returns.The bank has also downgraded several Asian currencies and trimmed exposure to regional credit, citing potential capital outflows in more volatile scenarios.
HSBC’s stance echoes growing caution among global banks. BofA Securities recently cut its Nifty FY27 earnings growth estimate to 8.5% year-on-year from 11% earlier, warning that Indian equities are “still not in a value zone” despite the recent correction driven by the Iran conflict and stagflation risks.
Goldman Sachs has also turned cautious, downgrading its stance on Indian equities to “marketweight”, cutting its Nifty target and warning that an “energy-shock-led” earnings downgrade cycle is about to unfold. The US investment bank argues that higher-for-longer oil prices following tensions around the Strait of Hormuz have meaningfully worsened India’s macro outlook and will force consensus profit estimates lower over the next few quarters.
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