HSBC adjusted its global equities outlook to a “neutral” position from a previous “max overweight” stance, citing heightened geopolitical risks in the Middle East and uncertainties surrounding potential regulation of artificial intelligence ahead of the upcoming U.S. midterm elections.

The London-based bank, which had maintained a strong preference for equities over sovereign bonds since mid-March, acknowledged in a Monday note that ongoing developments had reduced its confidence in maintaining such a bullish position. According to HSBC, persistent shifts in the geopolitical landscape and regulatory environment have made it difficult to sustain previous conviction levels in equities markets.

Concurrently, HSBC upgraded its view on developed-market sovereign bonds to “overweight” from “max underweight.” The bank highlighted that sovereign debt could benefit under multiple scenarios tied to the U.S. political outcome. One possibility is a slowdown in AI sector momentum if the Democratic Party secures victory, which could prompt tighter regulation. Another is electoral gridlock, which may alleviate fiscal concerns by limiting aggressive spending initiatives.

HSBC also cautioned that markets might be overestimating the likelihood of a so-called “Blue Wave” — a sweeping Democratic win in the midterms. Should this scenario occur, increased regulatory scrutiny of AI technologies could pose near-term risks to equities, reinforcing the case for greater bond exposure.

The adjustment reflects HSBC’s response to evolving macroeconomic and geopolitical conditions just weeks before the U.S. elections, signaling a more cautious approach to risk amid uncertainty over future policy directions and regional stability in the Middle East.