Newsletter summary
Fed's "inaction" policy is expected to boost equity assetsCrashbandicootteamracingnitrofueledHong Kong stocks are flexible to rise, but we need to be on guard against the risk of secondary inflation in the third quarter. Hong Kong stocks and A shares have obvious valuation advantages, and the bull market is beginning to appear. Risks include a US recession, a weaker-than-expected domestic recovery and a trade war.
Text of news flash
[the Fed is expected to usher in monthly level easing trading, but be wary of a return to tighter trading brought about by secondary inflation in the third quarter]
The Fed showed a "do-nothing" posture at its May meeting, providing a respite for equity assets. It is expected that in the next 1-2 months, the performance of equity assets will be relatively strong, and the upward flexibility of Hong Kong stocks is particularly worthy of expectation. The Wall Street Journal's Nick Timiraos described the Fed's policy as "governing by doing nothing". However, this loose policy also poses the risk of secondary inflation, and it is expected that in the third quarter, the Fed may have to raise its neutral interest rate forecast or even restart to raise interest rates to maintain its credibility.
The risk of secondary inflation mainly comes from several aspects: the rapid decline in US debt interest rates and financial conditions after the loose trading in May; the easy rise and fall of commodity markets in the third quarter; the release of the TGA balance accumulated by the US fiscal; housing rent inflation is expected to turn upward in the third quarter; and long-term inflation expectations are stronger. All these factors may lead to the result of "inaction" of the Fed is bound to be the result of "anarchy" under secondary inflation.
Nonetheless, domestic assets are likely to come under pressure again after the return of tightening expectations under secondary inflation in the third quarter. But the stock market is expected to hit a low and the dawn of a bull market is emerging. Valuations of Hong Kong stocks and A-shares are significantly lower than those of emerging market stocks such as India and Vietnam, and are expected to become safe havens for emerging market fund funds, with less possibility of hitting new lows. Hong Kong stocks and A-shares are already in the early stages of the bull market.
However, the market still needs to be wary of some risks, including a sharp recession in the US economy, a weaker-than-expected domestic recovery and a trade war. Investors need to fully consider these potential risk factors when making investment decisions.