Attention! This is a crucial buy signal for Hong Kong stocks!
When the Fed's interest rate hike cycle ends, the Hong Kong dollar exchange rate clearly departs from the weak-side guarantee level, overseas funds flow back into the Hong Kong market, the liquidity environment facing Hong Kong stocks improves, and Hong Kong stocks are expected to regain upward momentum!
In the first week of May, the Hong Kong stock market rose after a short holiday. However, since early February this year, the Hong Kong stock market has experienced a significant adjustment, mainly due to the fact that the Hong Kong dollar exchange rate has been pegged to the weak side guarantee level.
Therefore, Dongfang Securities pointed out that from the perspective of macro timing, when the Hong Kong dollar exchange rate is significantly separated from the weak side guarantee level, it may be a good signal to buy Hong Kong stocks!
Why?
According to Dongfang Securities' summary, the interaction and changes between the Hong Kong dollar exchange rate and liquidity are inevitable and have a strong directional significance for Hong Kong stock assets, especially when the Hong Kong dollar is pegged to the weak side guarantee level or the strong side guarantee level, respectively corresponding to Hong Kong stocks' weakness or strength.
The reason behind this may be that when the Hong Kong dollar touches the weak side guarantee level, the Hong Kong Monetary Authority buys Hong Kong dollars and sells US dollars, the base currency shrinks, the market liquidity decreases, and the valuation center of Hong Kong stocks moves downward; Conversely, when the Hong Kong dollar touches the strong side guarantee level, the Hong Kong Monetary Authority sells Hong Kong dollars and buys US dollars, the base currency expands, the market liquidity improves, and the valuation center of Hong Kong stocks moves upward.
In the short term, due to the fact that the Hong Kong dollar exchange rate has been pegged to the weak side guarantee level, the valuation center of Hong Kong stocks continues to move downward. Due to the historical high difference between the US dollar and the Hong Kong dollar, the Hong Kong dollar exchange rate may be difficult to change from the weak side guarantee level in the short term, and Hong Kong stocks continue to face liquidity pressure and lack upward momentum.
Secondly, from a medium and long-term perspective, the trend of US inflation falling is certain, and the cycle of the Fed's interest rate hike is approaching the end.
After the Fed's last interest rate hike in May, this round of interest rate hike cycle will end. The yield of US bonds is easy to fall and difficult to rise, which will ease the pressure of the current Hong Kong dollar and US dollar interest rate difference. The Hong Kong dollar will be separated from the weak side guarantee level, overseas funds will flow into the Hong Kong market again, the liquidity environment of Hong Kong stocks will improve, and Hong Kong stocks will once again gain upward momentum.
Third, the US economy is likely to enter a recession cycle, while the domestic economy is gradually recovering, and the economic cycles of China and the United States are out of sync, which increases the attractiveness of Chinese assets.