In the early hours of September 19, 2024, Beijing time, the Federal Reserve announced its latest monetary policy decision, implementing a 50 basis point reduction in the benchmark interest rate, thereby establishing a target range between 4.75% and 5%. This marks the Federal Reserve's first interest rate cut since March 2020.

Impact of the Federal Reserve's Rate Cut on Asia-Pacific Markets

On September 18, during a two-day monetary policy meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds rate target range to 4.75% to 5%, resulting in a significant 50 basis point reduction. Analysts assert that, historically, the Federal Reserve rarely initiates a new rate-cutting cycle with such a substantial decrease unless faced with a major economic crisis. As the Fed embarks on its first rate cut in four years, global capital appears poised to seek new growth opportunities, potentially leading to a differentiated outlook for Asia-Pacific markets.

Following the Fed's announcement, the Bank of Japan initiated its own two-day policy meeting, with results anticipated on September 20. The Japanese yen depreciated by 1%, and the USD/JPY exchange rate rose to 143.45, while 100 yen exchanged for 5.43 HKD. In this context, Japanese equities experienced gains, with the Nikkei 225 index increasing by 904 points (2.5%) to close at 37,284 points. The Tokyo Stock Exchange index also rose by 2.3%, reaching 2,625 points. Notably, the FOMC's decision did not strengthen the yen; rather, it triggered a rebound in export-related stocks.

Conversely, Southeast Asian markets appear to have reacted positively to the Fed's decision, with regional equities significantly outperforming those in other emerging markets. Notably, four of the five best-performing Asian stock benchmarks this month are from Southeast Asia, with Thailand leading the charge. Smaller Southeast Asian markets have also emerged as preferred choices for fund managers preparing for the Fed's policy shift, with India likely to attract increased capital inflows, while the Australian bond market may face challenges.

Overall, the Federal Reserve's rate cut not only provides greater policy flexibility for central banks across Asia but also encourages capital inflows and the recovery of economic activity, which may positively influence Asian markets.

Key Considerations for Hong Kong Stocks

Following the Federal Reserve's announcement of a 50 basis point interest rate cut, the Hong Kong Monetary Authority (HKMA) has reduced the base rate by 0.5 percentage points to 5.25%, down from 5.75%. This marks the HKMA's first rate cut since 2020. Acting HKMA Chief Executive Eddie Yue stated that the decline in U.S. interest rates allows for a potential reduction in local market rates, which could positively impact the economy. However, the timing of adjustments to deposit and lending rates by banks will depend on a range of factors.

Regarding investment focus in Hong Kong stocks, analysts suggest that attention should be directed towards dividend-paying stocks, particularly in sectors such as domestic banks, insurers, Chinese telecommunications, and energy. Although some large-cap technology stocks do not provide dividends, the capital shift towards Asia—specifically Japan, Taiwan, and South Korea—following the Fed's rate cut may present opportunities for undervalued Hong Kong stocks. This trend could benefit large-cap technology firms.

Analysts also indicate that utility stocks, Chinese telecommunications, and gold mining stocks in Hong Kong are likely to benefit from the rate cut. The former two sectors are expected to offer greater potential returns compared to U.S. Treasuries. The anticipated lower interest rate environment in Hong Kong is expected to favor market fundamentals, alleviating debt burdens for households and non-financial corporations, thereby injecting growth momentum into the overall economy. The rate cut is likely to attract capital into Hong Kong's risk assets, leading to a revaluation of these assets.

How to Trade on uSMART

To conduct investment transactions on the uSMART HK App, users should log in and click on the "Search" option located at the top right corner of the page. Enter the stock code, such as "00728," to access detailed trading information and historical performance. Subsequently, click on the "Trade" option in the bottom right corner, select "Buy/Sell," and fill in the trading conditions before submitting the order. For visual guidance, please refer to the accompanying image instructions.

(Source: uSMART HK)