Five interest rate hikes since the 1990s. After the 1990s, with the rapid development of the US economy, inflation began to rise. In order to alleviate inflationary pressure, stabilize the job market and support economic growth, the Federal Reserve has completed four rounds of interest rate hikes. In March 2022, the Federal Reserve announced an interest rate increase of 25 basis points, opening the fifth round of interest rate increase by the Federal Reserve.
US capital market: after the Federal Reserve announced interest rate hike, the market fluctuated significantly, but it will return to rationality in the medium and long term. From historical experience, after the Federal Reserve announced the interest rate hike, the US stock market began to evaluate the potential impact of the Federal Reserve's monetary policy on economic development and capital markets, and the US stock market fluctuated significantly in the short term. But as the economy recovers and inflation falls, the market will return to rationality.
Emerging markets: disturb the market in the short term, but in the medium and long term, it will not change the original trend. As a global superpower, the United States is the main supplier of global liquidity. From the historical data, the short-term volatility of overseas markets intensified during the interest rate hike cycle. However, when the Federal Reserve raises interest rates continuously and the market risks and pressures are fully released, the global market will usher in a new round of rising market.
China's capital market: the long-term attraction of RMB assets remains. In China, with the steady improvement of the internationalization process of China's capital market, the Fed's interest rate increase has also increased the uncertainty of China's capital market. The US Federal Reserve accelerated the tightening of monetary policy, and the US dollar index rose, supporting the strength of the US dollar. Overseas capital may flow into the U.S. capital market under the influence of exchange rate fluctuations, the pressure of asset depreciation denominated in other currencies increases, and the RMB exchange rate fluctuates slightly under the influence of market sentiment in the short term. However, the RMB exchange rate is mainly affected by the central bank's monetary policy and China's economic development. With the recovery of market sentiment, the impact of tightening overseas liquidity will gradually weaken, and the RMB exchange rate will remain basically stable in the medium and long term.
In the previous four interest rate hike cycles, the A-share market fluctuated due to the tightening of us liquidity in the short term. However, in the medium and long term, the A-share market did not follow the change of the Fed's interest rate increase cycle, but walked out of the independent market. The main reason is that China's capital market is more affected by China's economic and policy changes. In the future, the interest rate spread between China and the United States is narrowed by the impact of the differentiation of monetary policies between China and the United States. In the short term, the global asset allocation may be affected or changed by market sentiment, but it will not have a great impact on the RMB exchange rate and China's capital market. RMB assets still have a strong attraction. This is mainly due to China's strong economic resilience, increasing efforts to stabilize growth policy, continuous efforts of the central bank's monetary policy, long-term improvement in fundamentals, and great attraction to overseas assets.
Risk tip: economic growth is lower than expected, trade protectionism is spreading, and the Fed's policy is higher than expected.
