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Investment Analysis

Stock Markets Analysis

Stock Markets View

  • Core PCE in March slightly exceeded expectations. However, risk sentiment stabilized, and large technology companies reported strong profits. The stock market rebounded after touching the 100-day moving average.
  • Business activity in the Eurozone expanded at the fastest pace in nearly a year in April, which bodes well for European stocks. However, Eurozone government bond yields have recently followed the upward trend in US treasury yields, creating uncertainty for the future.
  • Despite the rebound in US treasury yields and a stronger USD, mainland China and Hong Kong stock markets remain positive due to policy support. Additionally, the semiconductor industry in the region benefits from strong performance in US tech stocks, attracting continued capital inflows.
  • Emerging market economies have generally improved recently. However, the USD’s trajectory, expectations of Fed rate cuts, and global geopolitical risks continue to influence related stock markets, leading to short-term volatility.
  • Hong Kong stocks were not impacted by US economic data. The market anticipates further expansion of the Hong Kong stock connect program, attracting more mainland Chinese capital. The Hang Seng Index broke above its 200-day moving average last July and may challenge the 18,000-point resistance.
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

  • US inflation remains similar to expectations, but high interest rates may persist for a longer period. Treasury yields may consolidate at elevated levels, affecting sovereign debt markets.
  • Inflation has not worsened further, easing market concerns. The yield spread between US investment-grade bonds has narrowed. Investors are closely watching the Federal Reserve’s May FOMC.
  • Mainland China’s industrial enterprises continue to see profit growth, reflecting gradual demand improvement. This stability supports Asian investment-grade bond yield spreads.
  • Improved market risk sentiment led to net inflows into high-yield bond funds. The US high-yield bond issuance in April increased by nearly 30% compared to the same period last year, aiding corporate refinancing.
  • Mainland China’s property market remains accommodative due to relaxed policies. Additionally, the PBOC’s commencement of purchasing government bonds stabilizes bond yields, creating a favorable onshore financing conditions for enterprises in long term.
  • The USD has not strengthened significantly, and emerging market assets are stabilizing. If a ceasefire agreement is reached in the Israeli-Palestinian conflict, higher yield-seeking funds may flow into the region’s bond market.
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 – While the 10-year US Treasury yield has risen, we believe persistently high interest rates will eventually dampen US inflation, consumption, and wage growth. Therefore, Fed rate cuts remain necessary, and recent treasury yield fluctuations present opportunities in USD bonds.
  • Equities – US tech giants have performed well, but uncertainty around rate cuts has led to stock market adjustments. After the May FOMC meeting, the S&P 500 Index may face pressure, creating opportunities in the US AI sector. Meanwhile, Asian high-dividend stocks are expected to remain stable amid global market volatility.
  • Inflation in the US has not shown a downward trend. The market is closely watching the Federal’s interest rate decision on 2 May. Currently, analysts generally expect rates to remain unchanged. The focus is on Chair Powell’s views on the US economy, inflation, and interest rate prospects, which are expected to impact the USD.
  • Since the beginning of this year, the pace of US inflation decline has been slower than expected. The market believes that the Federal may need to continue maintaining higher rates for a longer period. In the short term, US bond yields may hover at high levels. In Europe, the Deputy Governor of the ECB indicated that while there is consensus on starting to ease policy, future decisions will depend on various factors, which should support the euro.
  • Before the Labor Day holiday, several regions in mainland China further relaxed real estate policies. Changsha and Chengdu completely lifted local property purchase restrictions, and Nanjing also announced that homebuyers can apply for residency. Chengdu, as a strong second-tier city, has raised expectations that more cities will follow suit.

Provided by Hang Seng Investment Services Limited

Investment Commentaries

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All investments involve risks. Investors should note that prices of securities, foreign exchange, commodity and investment products may go up as well as down and past performance is not indicative of future performance. Investors should read the relevant investment offering documents and terms and conditions (including the full text of the risk factors therein) in detail before making any investment decisions.

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