Huili Fund: A-shares become a market with resilience, Hong Kong stocks are expected to benefit from the more aggressive interest rate cut path in the United States

According to the Wise Finance APP, Huili Fund's Chief Investment Officer, Multi-Asset Investment Zhong Huixin, shared her latest views on multi-asset investments. She pointed out that the weak performance of the U.S. employment report in July has raised concerns in the market about a possible economic recession in the United States. Additionally, the Bank of Japan may continue to raise interest rates within the year, triggering a unwinding of the yen carry trade and bringing turmoil to the global market, especially in the technology sector.

After a round of selling, the market has calmed down and valuations appear more reasonable. However, considering the continuous uncertainties in the market, market conditions may still remain volatile. The Chinese stock market (especially A-shares) is most likely to be immune to global market turmoil and has become a market with strong resistance to declines. In addition, the Hong Kong market is expected to benefit from a more aggressive rate cut path taken by the United States. Meanwhile, as the weight of technology stocks in the Southeast Asian market is relatively low, the impact of widespread selling of technology stocks in the region is also lower. The expected rate cut by the Federal Reserve is also expected to benefit the region.

Hong Kong stocks are expected to benefit from a more aggressive rate cut path in the United States, while A-shares have strong resistance to declines

The U.S. Institute for Supply Management's manufacturing data and July non-farm payroll figures were both below expectations, triggering concerns in the market that the economy may be heading towards a recession. As investors increasingly worry that a rate cut by the Federal Reserve may be too late, market pricing reflects more than 100 basis points of rate cuts within the year, with a 50 basis point cut in September. The above-mentioned concerns about economic recession, along with the Bank of Japan's policy actions and rhetoric becoming more aggressive, have triggered turmoil in the market. While it is believed that the United States will not enter an economic recession in the short term, uncertainties arising from the U.S. elections and geopolitical risks may intensify market volatility.

Huili believes that Hong Kong stocks are less directly affected by global market turmoil. With the United States taking a more aggressive rate cut path, the Hong Kong market will benefit from it, as there are more interest rate-sensitive industries. This will also help reduce cost pressures for consumers and businesses. Meanwhile, the Chinese economy remains weak, showing increasing signs of bottoming out. The gradual appreciation of the Renminbi also helps stabilize market sentiment.

The composition of A-shares in China is mainly made up of domestic companies, making it most immune to global market turmoil and a market with strong resistance to declines when the global investment atmosphere is weak. However, long-term bond yields are declining, reflecting a weak economic outlook. Benefiting from a more favorable base effect, there are signs of improvement in economic data. However, due to the lack of more specific policy details, the market is struggling to regain momentum.

Technology stocks have a significantly lower proportion, and Southeast Asian stock markets are less affected

The crowded unwinding of trades in technology and artificial intelligence-related stocks has dragged down the U.S. stock market. Since the weight of technology stocks in the Southeast Asian market is significantly lower, the impact of the sell-off is relatively small. With the Federal Reserve expected to start cutting rates soon, as long as the United States does not fall into an economic recession in the short term, Southeast Asia will benefit from it, as inflation in the region is stable and countries in the region are likely to follow suit in cutting rates. A decline in the U.S. dollar will also help the region's markets cope with financing costs. After the market adjustment, the valuations of the South Korean and Taiwanese markets have approached their historical average levels. The trends of these markets may follow the volatility of the U.S. market, but their valuations are still lower than the expensive U.S. market With investors reducing their risk levels, there has been a surge in unwinding of yen carry trades, triggering capital outflows from emerging markets and leading to selling pressure on emerging market currencies (excluding Asia). The upcoming US election may have a significant impact on emerging markets such as Latin America and Eastern Europe. The escalating geopolitical tensions in the Middle East continue to pose risks to the market. On the other hand, the accelerated pace of interest rate cuts in the US is expected to boost the market.

Japanese stock valuations have fallen to attractive levels, potential selling pressure will decrease

The unwinding of yen carry trades (partly due to the policy actions and tough language of the Bank of Japan) has led to significant market volatility. However, from the perspective of currency and stock valuations, the Japanese market is currently more balanced after this round of market sell-off. The market may still experience fluctuations, and any concerns investors may have about further interest rate hikes by the Bank of Japan could trigger significant volatility once again. However, with the yen returning to more reasonable levels (though still undervalued based on purchasing power parity) and a decrease in yen short positions, the market will focus more on fundamentals.

So far, corporate earnings for the second quarter have exceeded expectations, and companies have increased share buybacks, while imported inflation may also cool off due to the strengthening yen. Therefore, based on the current attractive market valuations, potential selling pressure will decrease.

Funds flow into investment-grade bonds, narrowing the upside potential of Asian high-yield bonds

The downward movement of the US bond yield curve, coupled with a subdued market sentiment, is helping stimulate funds flowing into investment-grade bonds. As market pricing reflects a more aggressive rate cut by the Federal Reserve, investors may shift to longer-dated investment-grade bonds. However, the overly bearish market sentiment towards the economy has led to a rapid decline in bond yields, so the market needs to adjust expectations again depending on future economic data releases.

The spread is at a relatively tight level, lower than the historical average. The upside potential for Asian high-yield bonds has narrowed. Although there is no downside potential in the short term, the market conditions may exacerbate volatility as market sentiment weakens.

The spread is at a relatively tight level, lower than the historical average. With increasing uncertainties in the market, the outlook for emerging market bonds remains unstable. In addition, the escalation of geopolitical risks will continue to weigh on the market.

The outlook for gold remains positive, multi-asset strategies have lower volatility

After breaking through historical highs, the price of gold will enter a consolidation phase. Given the decline in bond yields and the weakening of the US dollar, the outlook for gold remains positive. In the medium to long term, gold continues to be an ideal tool for hedging geopolitical risks. In addition to geopolitical concerns, investors are also worried about de-dollarization trends, which may continue to support the price of gold.

Compared to traditional single-asset or balanced investment portfolios, multi-asset strategies have lower volatility. However, the correlation between risk assets such as stocks, credit, and commodities has significantly increased recently. In an environment of uncertainty and low yields, returns become an indispensable source of investment for investors