HANG SENG BANK: Expectations for a soft landing in the US and global economy to strengthen, Asian risk assets are expected to benefit significantly

According to the financial news app Zhitong Finance, on the early morning of September 19th Beijing time, the Federal Reserve announced a 0.5% interest rate cut. Hang Seng Bank believes that the expectation of an economic soft landing is favorable for traditional US economic stocks and high-yield stocks that have underperformed in the past two years. At the same time, it is expected that Asian risk assets will benefit significantly from the Federal Reserve's substantial interest rate cut, especially in markets highly related to global interest rates, global economic cycles, and global trade such as Hong Kong, mainland China, ASEAN countries, etc. The valuations of these markets are expected to be adjusted upwards.

Liang Junfan, Chief Investment Officer of Wealth Management at Hang Seng Bank, stated that the Federal Reserve's announcement of a 50 basis point rate cut officially marks the beginning of an interest rate cut cycle, with the committee's latest forecast indicating a possible further 50 basis point cut by the end of the year. Chairman Powell mentioned that the market should not interpret this 50 basis point rate cut as a new trend prediction, indicating that future rate cuts will still be gradual. The meeting statement shows that the Federal Reserve is quite confident in the future performance of the US economy, and its monetary policy will continue to support employment, enhancing market predictions of a soft landing for the US and global economies.

Xue Junsheng, Head of Economic Research Department and Chief Economist at Hang Seng Bank, mentioned that after the Federal Reserve's interest rate meeting, Powell's comments at the press conference reflect a change in the Fed's policy stance, indicating that inflation risks have decreased and that the labor market is not the source of inflation pressure, but rather employment risks are rising. However, from the forecasts of the committee members, it is evident that the Federal Reserve remains confident in the US economy. Despite the rate cuts, the pace of rate cuts in the next two years is not expected to accelerate. The rate cut next year is projected to be 1%, consistent with previous forecasts, and in 2026 it will be 50 basis points, less than the previously estimated 1%. Hang Seng Bank believes that uncertainty still exists in future US interest rates, but the direction is becoming clearer. Hong Kong rates are expected to follow suit and decline, which will help support Hong Kong's economic growth.

In the bond market, as concerns about economic recession temporarily eased, long-term US bond yields did not further decrease from recent lows on the night of the interest rate meeting. However, as short-term rates are expected to gradually fall in line with Fed rate cuts in the future, Hang Seng Bank believes that long-term bond yields will remain stable. Investors should take advantage of the current near-historical high rates to deploy medium to long-term investment-grade US dollar bonds to lock in future returns