Global Central Banks “Brake Together”: Is a Change Awaiting for Hong Kong Stocks and Tech Stocks? A Layman’s Explanation of This Week’s Major Financial Events
Hello everyone, I’m your financial journalist. Recently, the market has been quite nervous, and you might have heard the rumors: the two most important economies in the world, the United States and Japan, are likely to raise interest rates at the same time. For us ordinary people or investors, this is like going to the bank to deposit money, only to find that the interest rate has suddenly increased. As a result, people are less inclined to take risks by investing in stocks and prefer to keep their money in the bank to earn interest.
Today, we’ll break down this complex news into five key points in plain language to help you understand: Where is the money flowing? Will stocks fall? Can we still buy tech stocks? What should we do?
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1. Why the Sudden Rise in Interest Rates? Because “Prices” and “Employment” Are Too High
First, we need to understand why the Federal Reserve (the U.S. central bank) and the Bank of Japan have decided to raise interest rates.
The news mentions that the U.S. Consumer Price Index (CPI) rose by 0.4% month-on-month and 3.4% year-on-year in August. Although this number doesn’t seem extremely high, considering the data from July, inflation hasn’t completely subsided, and the U.S. job market is still very strong.
To put it simply:
Imagine an economy as a car driving at high speed. If prices (inflation) rise too fast, it’s like the engine is overheating. The central bank raises interest rates to slow down the car and prevent the engine from breaking down.
- U.S.: Interest rates are expected to rise from 3.50%-3.75% to 3.75%-4.00%.
- Japan: Expected to rise from 1% to 1.25%.
Key point: The market had already anticipated this. Data from the Chicago Mercantile Exchange shows that the probability of a Fed rate hike is as high as 86%. This means that most smart investors (institutional investors) are already prepared, so while the hike is negative, it may not cause a sudden, drastic drop; rather, it’s more like the “shoe hitting the ground” effect.
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2. What’s the Specific Impact of Higher Interest Rates on Hong Kong Stocks? Foreign Capital Will Flow Out
Many retail investors ask: What does a U.S. interest rate hike have to do with me if I invest in A-shares or Hong Kong stocks? It’s a big deal!
Hong Kong’s stock market is highly internationalized, and its pricing power is largely in the hands of foreign capital. When U.S. interest rates rise, the following chain reactions occur:
1. Capital Flows Back to the U.S.: If you can earn higher risk-free interest (e.g., 4%) by depositing money in the U.S. or buying U.S. bonds, why take the risk of investing in Hong Kong stocks? As a result, foreign capital will withdraw from Hong Kong stocks and flow back to the U.S.
2. Valuations Get Pressured: Stock prices are based on the expected future earnings. The higher the interest rate, the faster future earnings “depreciate,” so current stock valuations need to be adjusted downward. This is especially true for highly valued growth stocks (such as tech and real estate stocks), which are the most sensitive to interest rates and will likely see the biggest declines.
3. Yen Arbitrage Transactions are Closed: This is a more technical point. Previously, low Japanese interest rates meant people could borrow yen (cheap money) to invest in high-risk assets (like U.S. or Hong Kong stocks). Now that Japanese interest rates have risen, the cost of borrowing has increased, so these investors will quickly repay their loans and sell their stocks to buy back yen. This will further reduce liquidity in the Hong Kong stock market.
Expert Views:
- Bo Da Capital’s Wen Tianna: The Hang Seng Index is expected to fluctuate between 24,200 and 25,500 points. Tech and real estate sectors will be under pressure, but high-dividend sectors like telecommunications, utilities, and banks are more resilient due to higher interest rates and stable dividends.
- Everbright Securities’ Wu Lixian: The impact won’t be too significant because the market had already anticipated it.
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3. Tech Stocks and the AI Sector: A “Real Cooling Down” or a “Feint”?
This is the most confusing aspect for investors this week. The news reports that executives from AI giants like OpenAI and Anthropic have called for a slowdown in the development of the most advanced models, which the market interprets as a slowdown in AI development, leading to significant pressure on AI-related stocks.
However, experts have different views:
Pessimists (Short-term Risk):
- Blue Water Capital’s Li Zeming: Current AI investments are mainly in the “upstream” (building data centers, training large models), which are costly. The “downstream” (real profit-making applications) haven’t yet emerged. With higher interest rates, the cost of building data centers increases, and if the downstream doesn’t generate profits, the return period for investments will lengthen, exposing risks.
- Market Sentiment: There’s concern that demand for computing power (buying chips, building data centers) will slow down, so people are selling their positions as a precaution.
Optimists (Long-term Logic Remains Unchanged):
- Game Theory Perspective (Guangzhou Public Investor): AI is a arms race. If a company slows down, it can quickly be overtaken by competitors, and it’s very difficult to catch up later. Therefore, the “slowing down” is more of a public relations tactic or a safety assessment; the pace of technological advancement may not slow down, or it could even accelerate.
- Fundamental Analysis (Wu Zhou, Wu Lixian): As long as AI companies continue to grow rapidly, their valuations shouldn’t be solely determined by interest rates. A short-term drop could be an opportunity to buy at lower prices.
Conclusion: In the short term, AI stocks will continue to adjust due to the interest rate hike and rumors of a slowdown. But in the long term, as long as technology progresses and demand for computing power remains, any decline is an opportunity.
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4. What Stage is the Market in Now? An Opportunity After “Painful Pricing”
The views from CITIC Securities and GF Securities are very similar, using the term “pricing.”
What is “pricing”?
It’s like buying discounted goods where the seller starts with a high price and gradually reduces it until you think the price is reasonable. The market is currently in this process:
1. Current Situation: The market is falling rapidly due to concerns about interest rate hikes, reflecting all the negative news (rate hikes, AI slowdown) in stock prices.
2. Future Outlook: Once the Fed actually raises interest rates (the “shoe hits the ground”) and the statement doesn’t indicate further hikes (no excessive hawkishness), panic will subside.
3. Fourth Quarter Opportunities: CITIC Securities believes that “after sufficient pricing, the market will have more room for maneuvering” in the fourth quarter. In other words, the current decline is creating space for future gains.
Guangfa Securities’ Liu Chenming adds: As long as global interest rates continue to rise, the conditions for a large-scale return of capital to Hong Kong stocks are not ripe. So, don’t expect a V-shaped reversal; rather, we’ll see a volatile market with opportunities arising from the release of local risks.
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5. What Should Ordinary Investors Do Now? Practical Advice
Based on the advice of several industry experts, if you currently hold stocks or plan to invest, consider the following strategies:
1. Control Your Exposure: Avoid being fully invested. Keep some cash on hand and don’t put all your eggs in one basket. Wen Tianna suggests “waiting and controlling your exposure.”
2. Focus on “Defensive” Sectors: With higher interest rates, companies with high dividends and stable businesses are more attractive.
- Recommended Industries: Telecommunications, utilities (electricity, water, coal), and some bank stocks. These sectors are less affected by interest rates and provide stable cash flows, making them suitable for defense.
3. Tech Stocks: Be patient and wait for market sentiment to stabilize. Short-term: Don’t rush to buy into plummeting AI stocks. Let the market digest the news about interest rate hikes and AI slowdowns. Medium-term: Focus on truly strong AI leaders. Wu Zhou believes now is a good time to start building positions for a potential rebound in the tech sector.
- Logic: Believe in the inevitability of AI technological progress and don’t be intimidated by short-term public relations statements.
4. Watch for “Technical Rebounds: If the Fed’s statement after the hike is mild, the market may experience a short-term rebound. You can participate with a small position, but don’t expect a long-term bull market to start immediately.
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Summary
This week is a “super central bank week,” with interest rate hikes by the U.S. and Japan almost certain.
- Short-term: Hong Kong stocks and tech stocks will continue to face pressure as capital flows back to the U.S., and the market is digesting the negative news.
- Medium-term: This is a “painful but necessary” pricing process. Once the interest rate hikes are implemented and the statements are not overly hawkish, panic will subside, and there may be better investment opportunities in the fourth quarter.
- Strategic Advice: Focus on defensive sectors with high dividends; don’t rush into tech stocks until market sentiment stabilizes. Remember, the market is often right, but it can also be wrong (overreacting). Stay calm when others are fearful and cautious when others are greedy. I hope this analysis helps you make informed investment decisions!