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as the federal reserve is about to start cutting interest rates, stock indices in many countries have hit new highs.

currently, the market is anticipating whether the fed will cut interest rates by 25 basis points or 50 basis points, and the scale of capital flows to risky assets has expanded significantly. on the 17th, australia's s&p/asx 200 index, india's mumbai sensex30 index, singapore's ftse straits index and other indices rose, setting new historical highs.

at the same time, the market expects the hong kong interbank offered rate (hibor) to continue to decline, and hong kong's real estate and technology sectors will benefit significantly. on the 17th, the hang seng index rose by 1.37%, and the real estate and technology sectors also continued to rise. last week, the net inflow of funds through the hong kong stock connect increased by nearly 50% month-on-month, and there was a clear sign that funds were embracing the technology sector.

the federal reserve is about to cut interest rates, and stock indexes in many countries have hit new highs

the federal reserve's interest rate cut in september is almost certain, and it may officially announce the start of a rate cut cycle in the early morning of september 19 (thursday) beijing time. however, the extent of the first rate cut remains uncertain, and the market continues to gamble on a 25 basis point or 50 basis point rate cut.

on september 17, as investors expected the federal reserve to make a large-scale interest rate cut, the australian stock market hit a record high. the s&p/asx 200 index once broke through 8,150 points, setting a new historical high. the singapore ftse straits index hit a six-year high, and india's mumbai sensex30 index hit a new historical high.

traders are currently increasing their bets on the fed to cut interest rates by 50 basis points. according to the cme fed watch tool, the market currently expects the probability of the fed cutting interest rates by 50 basis points to rise to 62%, higher than 50% last friday. lseg refinitiv data shows that the market currently believes that the probability of the fed cutting interest rates by 50 basis points is close to 70%.

"market expectations for a 50 basis point rate cut by the fed this week have risen and have become the most likely outcome in traders' eyes, surpassing expectations for a 25 basis point cut," said mohamed el-erian, chief economic adviser at allianz se.

huatai securities chief economist yi he believes that the recent speeches by powell and waller clearly convey the signal that the fed hopes to prevent a rapid decline in the growth and job market, which means that the fed's interest rate cut decision may not deviate too much from market expectations to prevent a market correction and thus form a negative feedback of "tightening financial conditions → slowing down the real economy." "considering that the current market pricing has a 60% probability of a 50 basis point rate cut, we believe that the probability of the fed's first 50 basis point rate cut is relatively high; but if the fed chooses to cut interest rates by 25 basis points in september, powell may give more dovish forward guidance to ease market sentiment."

funds inflow into hong kong stocks hit a record high

on september 17, the three major hong kong stock indexes opened low and ended high. at the close, the hang seng index rose 1.37% to 17,660.02 points, the hang seng technology index rose 1.12%, and the state-owned enterprise index rose 1.41%.

the shift in the fed's monetary policy has also driven market funds, including southbound funds, to continue to flow into the hong kong stock market. coupled with the large-scale buybacks of hong kong-listed companies, the hong kong stock market has continued to rise. the real estate and technology sectors have risen particularly significantly. wind data shows that as of august 30, the cumulative net inflow of southbound funds this year has reached hk$461.258 billion, setting a record high for the same period in history.

on september 10, the hong kong stock connect adjustment took effect. alibaba (09988.hk) was officially included in the hong kong stock connect after it became a dual primary listing. it ranked among the top ten most active stocks in the southbound market for four consecutive trading days. last week, the southbound market bought a net amount of hk$16.42 billion worth of alibaba. in the holdings of the hang seng internet etf (513330), which has the largest fund share size, alibaba's holdings account for 11.3%.

from a fundamental perspective, the constituent stocks of hang seng technology and hang seng internet have performed well. the performance of internet giants and technology companies has exceeded expectations, and these technology giants are also buying back their own stocks. since the beginning of 2024, 237 stocks in the hong kong stock market have been repurchased, an increase of 92 from the same period last year; among them, the cumulative repurchase amount of 52 stocks exceeded hk$100 million during the year; the total repurchase amount was hk$201.2 billion, a year-on-year increase of 172%. the number and scale of repurchases have both reached historical highs for the same period.

jpmorgan chase bank predicts that the hong kong interbank offered rate (hibor) will drop to 2.75% next year, and the actual mortgage rate under the prime rate will drop to 3.25%. the bank believes that compared with retail and office buildings, hong kong's residential market will benefit more from the us interest rate cut. it is expected that hong kong residential property prices will rebound by 5% next year, while this year they will fall by 8%, a 30% drop from the high. the bank estimates that every 100 basis point drop in the hong kong interbank offered rate can drive an average profit increase of 5% for hong kong real estate developers.

wu kaida's team from the strategic research department of tianfeng securities believes that the support of us dollar liquidity for hong kong stocks will still depend on the extent and sustainability of interest rate cuts. a necessary condition for the expansion of the total balance of hong kong banks is that the interest rate spread between hong kong and the united states narrows rapidly or even turns positive. since hibor is affected by both the linked exchange rate system and local financing needs, the main focus of liquidity in the next stage is the speed of the fed's interest rate cuts and the economic recovery of hong kong.