Investment Insights

Investment Analysis

Stock Markets Analysis

Stock Markets View

  • The upcoming release of April’s inflation data on May 15 will have a short-term impact on the performance of the US stock market. From a medium-term perspective, there remains a high chance of a soft landing for the US economy, which provides certain support for the stock market and corporate earnings.
  • The European economy has shown better-than-expected performance, leading to a significant recent gain in European stocks. However, the current levels have already priced in certain positive factors, and there is still uncertainty in corporate earnings despite the economic recovery in Europe. It is advisable to continue monitoring the performance of the European stock market.
  •  The Federal Reserve Chairman has indicated that the next interest rate move will unlikely be a hike. Coupled with a cooling US labor market and a stabilizing trend in the US dollar, it favors capital inflows into undervalued high-yield stocks in the Asian region.
  • The consolidation of the US dollar and the rebound in commodity prices have driven decent performance in the emerging Latin American stock markets over the past few weeks. However, caution should be exerted against individual market-specific political and geopolitical risks.
  • There are reports that mainland China may cancel the dividend tax for individual investors participating in the Hong Kong Stock Connect program, which could attract funds into high-dividend H-shares and drive the Hang Seng Index higher. Additionally, mainland China has recently ramped up stimulus policies in the real estate, automotive, and home appliance sectors, which have lifted market sentiment.
Note:

Positive - Expect that the particular asset class potentially may perform well relative to the relevant major global benchmark(s) in the long run
Neutral - Expect that the particular asset class potentially may perform in line relative to the relevant major global benchmark(s) in the long run
Cautious - Expect that the particular asset class potentially may not perform well or in line relative to the relevant major global benchmark(s) in the long run

Provided by Hang Seng Investment Services Limited

Bond Markets View

  • While consumer sentiment in the US has declined, the market is also concerned about inflation. The Federal Reserve may maintain high interest rates for a prolonged period to counter inflation. US Treasury yields have shown narrow fluctuations, while sovereign bonds have exhibited stable performance.
  • The US economic data has been lackluster, yet investment-grade bond funds have witnessed continuous net inflows for 28 consecutive weeks, indicating strong demand for high-quality bonds in the market.
  • Favorable data on mainland China's foreign trade and inflation strengthens market confidence in economic recovery, and the yield spread for investment-grade bonds continues to remain at recent lows.
  • The US high-yield market has seen active issuance of new bonds, reflecting robust market demand for high-yield assets. Fund flows into high-yield bonds recorded the largest weekly net inflow since November last year, as of May 8.
  • Relaxation of property market regulations in mainland cities has led to narrowing credit spreads for overall property and Asian high-yield bonds. Market attention is focused on the effectiveness of various policies in stimulating real estate sales and improving liquidity for property developers.
  • The likelihood of further rate hikes by the Federal Reserve is low, and the US dollar has not strengthened further. The trend in emerging market bonds has improved, and the currently relatively high yields are expected to attract continued inflows of capital seeking higher returns.
Note:

Positive - Expect that the particular asset class potentially may perform well relative to the relevant major global benchmark(s) in the long run
Neutral - Expect that the particular asset class potentially may perform in line relative to the relevant major global benchmark(s) in the long run
Cautious - Expect that the particular asset class potentially may not perform well or in line relative to the relevant major global benchmark(s) in the long run

Provided by Hang Seng Investment Services Limited

Market Drivers and Near-term Risk Sentiment

Asset Allocation Focus

  • Bonds – The Bank of England and the European Central Bank have a good chance of cutting interest rates earlier than the Federal Reserve. Additionally, with the European economy in the early stages of recovery, positive news is expected to be released gradually, leading to a stabilization and potential decrease in the default rate of European high-yield bonds, which may attract capital inflows.
  • Equities – Recently, individual large US companies have projected cautious earnings outlooks. Coupled with mixed economic data and relatively high valuations in the US stock market, short-term upside potential will be limited. In terms of asset allocation, attention should be given to more resilient and defensive high-yield stocks in Asia to enhance portfolio returns.
  • As the US first-quarter GDP growth and job additions in April slowed down, the market has brought forward the expected date of the first US interest rate cut to November. The possibility of further advancement of the US rate cut date depends on the release of the April CPI data on May 15. If rate cut expectations are pushed forward, it may be seen as negative for the US dollar.
  • The University of Michigan's Consumer Sentiment Index in the US fell to a six-month low in May, while consumer inflation expectations increased, making it more challenging for the Federal Reserve to balance growth and price stability. Several Federal Reserve officials lean towards maintaining high rates for a longer period. US Treasury yields are expected to remain range-bound for now.
  • In April, China’s foreign trade and inflation data exceeded expectations. Simultaneously, more cities have implemented policies to ease restrictions in the property market. Additionally, there are reports that the mainland is considering abolishing the 20% dividend tax currently imposed on Hong Kong Stock Connect investors. This move is seen as a significant step by the central government to support cross-border development.

Provided by Hang Seng Investment Services Limited

Investment Commentaries

第三季增持債券 審慎部署股市

Hong Kong Stock Market Express (Chinese Only)

US Stock Strategy amid Lowered Expectations of Rate Cuts
 (Chinese only)

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