caught off guard. At the beginning of this week, the global market fell collectively. On Monday and Tuesday, A shares Shanghai Composite Index fell 4.47% to 3300 points, and the ChiNext Index fell 6.03%; next door Hong Kong stock market Hang Seng Index also fell 5.20%. Friends couldn't help but exclaim: "What's wrong with the stock market?" (Data source: wind, 2022.03.08)
In addition to the heating of regional risks, Fed rate hike is also considered to be one of the causes of global market turmoil . Since the beginning of the year, rumors of the Federal Reserve Fed expecting rate hikes have been rampant. In January, the U.S. consumer price index (CPI) reached 7.5%, a record high in 40 years. Fed Interim Chairman Powell also recently said that the Fed will raise interest rates "cautiously" at a meeting held from March 15 to 16, and he supports a 25 basis point hike this month. A stone has caused a thousand waves. The industry believes that Powell's remarks are paving the way for the rate hike this summer to exceed market expectations; UBS immediately stated that the Federal Reserve is expected to raise interest rates six times this year, each time increasing by 25 basis points. (Source: Financial World, 2022.03.07)
There is no doubt that the Fed rate hike is one of the most concerned major events in the capital market in 2022. Many friends are worried about the impact of the Fed rate hike on investment. Some friends also asked Xiaoxia, "Do you have to redeem pure bond funds to invest in 'fixed income+' under the expectation of global interest rate hikes?" So Xiaoxia will talk to you today, what impact will the Fed rate hike have on the Chinese market?
1
Performance of major assets in the three Fed rate hike cycles
Xiaoxia has popularized everyone in previous programs, and this time we will talk about interest rate hikes. One drop and one plus, it is actually easy to remind people of this a pair of "reverse operations". interest rate cut is the central bank of a country or region, which reduces the borrowing costs of the entire market, including enterprises and individuals, and is often used to stimulate the economy. Then interest rate hike is the hi sequel of a country or region, which in turn increases the interest rate , thereby increasing the borrowing costs of the entire market, which is often used to suppress inflation. The Fed raises interest rates this time to curb inflation by . According to the statement of Fed Chairman Powell, if U.S. inflation continues to remain high, the Fed will be prepared to take more active actions and raise interest rates by more than 25 basis points at one or more meetings.
Looking back, what impact may the Federal Reserve raise interest rates have on the market? Learn from history. We can first review the performance of the capital market in the last three Fed interest rate hike cycles . Looking back on history, the Fed's three most recent rate hike cycles occurred from June 1999 to May 2000, June 2004 to June 2006, and December 2015 to December 2018, and these three rate hikes were in periods of economic overheating and rising inflation.
Next, let’s take a look at the reactions of major assets during these three rounds of Fed interest rate hikes -
is the stock market. After the Fed raises interest rates, global stock markets showed a trend of "falling first and then rising". At the beginning of the three cycles, the equity market will pull back, with the maximum decline of the A-share Shanghai Composite Index between 15% and 30%, and the maximum decline of the S&P 500 is between 5% and 15%. But over the long run, this impact will slowly subside, and each market will eventually return to its own track and resume its rise. means that the global stock market showed a "√"-shaped trend throughout the interest rate hike cycle.
The second is the bond market. After the interest rate hike, market interest rates will rise, and new bonds will receive higher returns, which will stimulate investors to sell their original bonds and buy new bonds. In history, the overall rate of the 10-year U.S. Treasury bond interest rate has risen during each interest rate hike cycle, while my country's Treasury bond interest rate is not affected much. It has experienced several phased downwards during the Fed's interest rate hike cycle.
3 is commodity . interest rate hike is to tighten monetary policy , reduce the money supply in the market and increase market interest rates. It should have been bad for commodities, but there are many factors that affect commodity prices, such as their own supply and demand relationship. Historical data from show that commodities are a more direct category of major assets affected by the Fed's interest rate hike. They are basically on an upward channel during the interest rate hike cycle, and they did not start to show a significant pullback until the end of the Fed's interest rate hike. (Above reference: Haitong Securities , 2022.03.02)
2
low valuation has a higher defensive value in the interest rate hike cycle
Understand the impact of the Fed's interest rate hike on various assets in history, let's focus on this time. In fact, friends who are familiar with A-shares should know that compared with Hong Kong stocks, the market with more closely related to the global market, A-share market is actually more affected by the domestic market , including the market downturn since the beginning of the year. In addition to the intensified external geopolitical conflicts and the Fed's interest rate hike, there are also factors such as factors such as the downward pressure on the domestic economy and the reduction of the market risk preference .
Since the performance of A-shares mainly depends on the domestic economy, policies and market environment. So what else should investors pay attention to in this round of Fed interest rate hike?
First, prepare for long-term investment . Looking back, A-shares are expected to be affected to a certain extent in the sharp fluctuations of global stock markets. Combined with the current international situation and the actual situation of A-shares themselves, the market may continue to fluctuate in the short term, which is also something that everyone needs to be prepared for. But in the medium and long term, with the gradual advancement of the " stable growth " policy, the intensity of monetary policy easing gradually increases, and the economic prosperity of may gradually improve . At the same time, the A-share Shanghai Composite Index price-earnings ratio-TTM is only 12.9 times, far lower than the 20.59 times of the S&P 500 and 14.25 times of the FTSE 100 in the UK. It is at a relatively low valuation around the world, and is also conducive to maintaining relatively stable in a global fluctuation. Therefore, if you don’t know how to deal with short-term shocks, you might as well look at it in the long run. (Data source: wind, as of 2022.03.08)
Second, adjust your own configuration appropriately. As the "top priority" of the capital market in 2022, the Federal Reserve's interest rate hike is likely to further intensify the differentiation of the A-share market. Among them, sectors with low valuation, high dividend and stable returns are expected to continue to become the main line of the market; on the contrary, sectors with relatively high valuations may face certain pullback risks. Therefore, at this point, can appropriately increase the value sector , which has catalyzed the policy of stabilizing growth and also has defensive attributes, such as finance, infrastructure, etc., to increase its own risk resistance; at the same time, considering that has higher defensive value in the interest rate hike cycle, and whether the Hong Kong stock market is financial, real estate and other cyclical stocks or Internet technology sectors are at an absolute low level of their own historical valuation, can appropriately increase the allocation of Hong Kong stocks product. Although it is inevitable to be impacted in the short term, it may become a surprise for investment this year in the future.
Finally answer the question raised by my friend at the beginning, should we redeem pure bond funds and invest in "fixed income +" under the expectation of global interest rate hikes? If the current equity position is relatively high, then Xiaoxia recommends that you do not redeem the pure bond fund , because pure bond funds can play a role in smoothing risks; if the current equity position is not high and I hope to be able to make a low layout, you might as well replace some pure bond funds with "fixed income +" varieties, but be prepared to fluctuate more than the net value of "fixed income +" and have greater risks than pure bond funds. (Above reference: CICC, 2022.01.21; Zhongtai Securities, 2022.02.25)
Warm reminder: This information is not used as any legal document. All information or opinions expressed in the information do not constitute the final operational suggestions for investment, law, accounting or taxation. Our company does not make any guarantees for the final operational suggestions for the content in the information.In no event shall the Company be liable for any loss arising from any use of any content in this material. my country's funds have a short operating time and cannot reflect all stages of stock market development. The market is risky, so be cautious when entering the market.
