How does the Fed’s interest rate hike affect the market?
The Fed has a high probability of raising interest rates in March. The US inflation and non farm payrolls data in January again exceeded market expectations. Combined with the policy signals released by the interest rate meeting at the end of January, the market generally expects the Federal Reserve to start raising interest rates in March.
The tightening of liquidity after the Fed’s interest rate hike will have a negative impact on the valuation of the US equity market. Historically, the valuations of A-share and Hong Kong stock markets also fell during the Fed’s interest rate hike. However, if the corporate earnings performance is strong, it can offset the negative impact of the Fed’s interest rate hike on market valuations. The impact of changes in the real yield of US bonds on market valuation is more obvious.
How does the Fed’s interest rate hike affect the market style of A-Shares and Hong Kong stocks?
The rise of US bond yields has a greater negative impact on overvalued companies, so consumption and growth style may be more significantly impacted. This is because growth companies have not yet formed a relatively stable cash flow, or cash flow is mostly concentrated in the later stage; Consumer companies have higher valuations, so they are more sensitive to the discount rate.
This is also consistent with the style of the A-share market since the beginning of the year. On the one hand, the sustained force of the steady growth policy and the correction of the real estate policy have made the financial and stability sector record a good increase since the beginning of the year. On the other hand, the Fed’s expectation of raising interest rates and the rise in the real yield of US bonds are also one of the catalysts for the switching of the style of the A-share market from the consumption and growth sector with high valuation to the construction and financial sector with low valuation since the beginning of this year.
In terms of specific industries, the rise of the real yield of US bonds has a great negative impact on the valuation of industries such as automobile, food and beverage, new energy and medicine in A-Shares and Hong Kong shares. In terms of style, large market capitalization companies and companies with high foreign shareholding are more sensitive to changes in US bond yields.
The nominal yield of US bonds is expected to fluctuate at a high level, and the real yield of US bonds may continue to rise
The nominal yield of US bonds has passed the rapid upward stage, but it will probably remain high in the first half of the year. At present, the US bond yield has fully reflected the expectation of raising interest rates this year, and the US inflation data is expected to peak and fall after the second quarter at the latest. Therefore, if there is no unexpected black swan event, such as the escalation of the geopolitical crisis in Russia and Ukraine, the actual rise space of the long-term yield of US bonds will be limited in the short term after the implementation of future interest rate hikes. However, considering that US inflation is expected to peak and fall, the real yield of US bonds may rise further. The time period for the fast switching of A-share market style from overvalued value to undervalued value has passed, but the valuation of high valuation companies is difficult to return to the previous level in the short term.
Continue to grasp the “spring agitation” of Hong Kong stocks
The market expectation has been improved and the policy is making steady efforts. In January of 22, the PMI of manufacturing industry was 50.1%. The manufacturing industry continued to expand, and the economic momentum gradually stabilized and rebounded. At the same time, on the one hand, relevant policies to support and protect the financing of rental housing have been issued one after another, or build a new growth pole of the real estate industry; On the other hand, the state has issued relevant policies to promote the standardized and healthy development of the platform economy, the market sentiment continues to rise, and the restorative rebound in the Internet field may continue. The probability of “spring agitation” of Hong Kong stocks has been opened. It is very important for investors to grasp the yield during the “spring agitation”.
Suggestions on industry configuration: 1) Internet industry whose intensive period of antitrust policy has passed and whose valuation is expected to be repaired. 2) Machinery and construction industries benefiting from the expected warming of China’s infrastructure and marginal improvement of prosperity. 3) Catering and aviation industries benefiting from the improvement of offline consumption and international travel chain.
Risk tips: 1 US sanctions against Chinese enterprises intensified 2 The economy fell more than expected by 3 Overseas market volatility intensified.
