Turning volatility into opportunity for institutional investors

An uptick in volatility across major asset classes challenged traditional investment strategies in the first half of 2025. Unusually, both equities and bonds suffered bouts of extreme volatility, largely as a result of US trade tariffs announced in early April.¹ A 60/40 allocation, where investors maintain a 40% allocation to bonds as a cushion against more volatile equities, offered little protection.

The warning signs were apparent as early as March, when HSBC’s Funding the Future survey found that institutional investors ranked tariffs, protectionism and trade shifts as top concerns.²

But while an uncertain environment complicates investment decisions, it also creates opportunities for institutions who can seize the opportunities ahead.

Faced with volatility in the public markets, many asset allocators have turned to alternative investments to boost diversification, including real assets (infrastructure and real estate), private equity, private credit and even digital assets.

Returns on a basket of private assets in the first quarter of 2025 remained stable, proving less volatile than public markets.³ At the same time, companies are staying private for longer: in Europe, the companies that went public in the first half of 2025 were 29 years old on average, compared to 13 years in 2021.⁴ Many Asian unicorns are choosing to stay private for longer, supported by an abundance of private capital.⁵

This is helping to fuel the continued growth in private markets, with assets under management projected to reach USD60 trillion by 2032, growing at 10% annually.⁶

While the Funding the Future survey showed weak appetite for venture capital and private equity in the near term, private credit has emerged as a standout asset class, attracting significant inflows as investors seek greater stability and higher yields than may be on offer in public credit. Private credit has been growing especially rapidly in Asia Pacific, increasing more than sixfold over the decade to 2024, but still accounts for only 5% of global private credit, implying ample room for further growth.⁷

Institutional clients are also looking to private markets to gain exposure to long-term trends. Real assets — particularly those linked to sustainability and digital infrastructure — have become core allocations for institutions seeking long-term stability and inflation protection.

Global investments in solar power generation, for example, are expected to reach USD450 billion in 2025, according to the International Energy Agency. Battery storage is also a fast-growing area, with investments expected to exceed USD65 billion this year.⁸

Data centre developments are set for another record year in 2025, according to consultancy JLL, which estimates roughly USD170 billion of projects will need to secure either development or permanent financing in 2025.⁹ Much of this growth is being funded in the private markets – as highlighted by Blackstone’s AUD24 billion (USD15.6 billion) acquisition of Asia Pacific data centre business Airtrunk in 2024.¹⁰

In the public markets, many institutional investors are looking to take advantage of market dislocations to boost their returns. Inflows into equity long/short hedge funds rose to a decade high in the first half of 2025.¹¹ Actively-managed exchange-traded funds (ETFs) also had a strong start to the year, according to Morningstar data.¹²

In a recent Schroders survey, three-quarters of institutional investors also stated that active strategies add value in today’s environment, and 80% plan to increase allocations over the next 12 months.¹³

Elevated volatility also provides rich trading opportunities in commodities and currency markets. Activity in FX markets jumped significantly in the first half of 2025, with volumes in spot trading and derivatives markets reaching multi-year highs.¹⁴ Gold remained the stand-out performer in commodities as fears of persistent inflation kept prices high, with average daily trading volumes on all market segments increasing in 2025, according to the World Gold Council.¹⁵

As uncertainty persists, the ability to adapt quickly and deploy capital strategically has never been more critical.

Rather than waiting for volatility to subside, leading institutions are doubling down on multi-year trends as they pursue their strategic goals.

Asia’s economic growth remains a long-term focus – both as a target for investment and a source of capital. While trade tariffs have clouded the outlook for some markets, domestic consumption and regional integration continue to attract investors to markets such as India, where IPOs are running at a record pace.¹⁶ HSBC acted as a bookrunner on the INR125 billion (USD1.5 billion) listing of HDB Financial Services in July, India’s biggest IPO so far this year.¹⁷

Hong Kong is also enjoying a rebound in equity offerings, supported by strong inflows from mainland Chinese and international investors. Mainland Chinese investors poured a record HKD866.8 billion (USD110.4 billion) into Hong Kong’s stock market in the first seven months of 2025.¹⁸ A rebound in liquidity helped the city‘s bourse top the tables as the world’s busiest for IPOs in the first half of the year.¹⁹ HSBC has again played a part, advising on the USD442 million listing of FWD Insurance at the end of June, among other deals.²⁰

Rising regional liquidity and investment flows are firmly in focus among institutional investors.

Stellar growth in Asia’s ETF market, with assets soaring to an all-time high of USD1.37 trillion as of the end of June 2025, is creating new opportunities for asset managers to capitalise on emerging investment trends by tapping into regional wealth pools.²¹

The growth of capital and investment flows between Asia and the Middle East is one such example. CSOP Asset Management launched Asia’s first ETF tracking the performance of Saudi Arabian equities in November 2023, with HSBC acting as the ETF partner in the listing of the fund in Hong Kong.²² The first Hong Kong-focused ETF in Saudi Arabia followed in 2024.²³

HSBC has a strong track record of helping institutional clients access new opportunities and navigate structural shifts.

Drawing on its global network, deep sector expertise and experience of structuring innovative solutions across both public and private markets, HSBC is ready to help institutional clients seize the opportunities as they arise.