Is Is Is

Is certainty back as US books 7 rate hikes, China vows tech & property support

Equities 7 minutes to read
Jessica Amir

Australian Market Strategist

Summary:  Markets rally on the certainty of the US Fed booking 7 rate hikes this year, which supports profitability of US banks, and bond holding stocks, as rates will rise to 1.9%, while the Fed forecasts 3.5% GDP and 4.3% inflation. On the flip, basic math suggest doomsdays is here for US high debt holding companies, and US tech stocks in crowded-slowing markets. Meanwhile, it’s risk-on in Australia with Block and Pointset charging 10%. Elsewhere, investors rush to buy the dip in HK’s Hang Seng, China property and China tech stocks after Beijing pushes to stabilise markets; easing tech regulation, and vowing to support the property sector, with Country Garden Holdings up 27%, And JD.com up 11%. In commodities, the key steel ingredient, iron ore, rocked back to $150 heading toward $170. While copper, aluminum, lithium, timber, limestone, nickel will likely see rising demand, supporting stocks on the ASX.


Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong

What’s happening in equites that you need to know?

  • The Australian share market (ASX200) rallied 1.1% to 7,251, its highest close since February 21. The technical indicators also suggest the ASX200 could rally given the MACD and RSI are looking bullish. It comes as the bulls retuned, given uncertainty seems to be over as the Fed will rise rates 7 times this year, including the 0.25% hike overnight. That’s what markets expected. PLUS Australian employment rose by 77,400 people (beating expectations that just 37k jobs would added to the economy). Meanwhile Australian unemployment fell to 4%, which beat exceptions and also means unemployment is at its lowest level since 2008. So given more Aussies are in jobs, and tech rallied overnight Pointset (PBH) shares surged the most 11%, followed by Zip (Z1P). Zip has been bought a lot by Saxo clients, but it’s worth noting, Zip shares are poised to rally higher over the short term (from a technical perspective for now), but given the fundamental are not that attractive, giving rising competition and interest rates, Zip’s revenue growth is expected to slow in 2022 and 2023, meaning you shouldn’t expect strong long term returns. We prefer commodity stocks like Elders (ELD) in agriculture, BHP (BHP) in iron ore and copper, and Allkem (AKE) in lithium, and Woodside (WPL) in oil and gas for example, given the lack of commodity supply, rising demand and supportive policy.
  • In Asia, Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) continued to move higher this morning by over 5% and 2% respectively. Yesterday, Hang Seng Index and Hang Seng TECH Index melted up by jaw-dropping 9% and 22% respectively following China’s Vice Premier Liu He’s remarks pledging support for market stability, accommodative policies, overseas listing, potential resolution of the disagreement with the U.S. over Chinese ADRs as well as hints of scaling down of the regulatory pressures against ecommerce platforms and a more supportive tone towards the property sector.  In Singaporethe Straits Times Index (STI) rose more than 1% this morning.
  • In the US, the S&P 500 (US500.I) and Nasdaq 100 (USNAS100.I) rose 2.4 and 3.8% on Wednesday and tonight in the US, on their Thursday, the indices are expected to open flat. You might expect smaller tech stocks to be sold on profit taking, and for investors to continue to make long term positions in bond holders and banks like JP Morgan Chase, Bank of America, Wells Fargo and Citigroup, given rates are rising and employment is strong in the US. PLUS, also expect commodity stocks to do well, given the bounce back in commodes following China’s supportive policies. So I’d be watching BHP, Rio, Vale etc.
 

What you need to consider

  • Asian market sentiment notably improved in the Hong Kong and mainland Chinese stock markets. It comes in response to China’s Vice Premier Liu He’s remarks and the US Fed’s move to raise interest rate by 25bps overnight. The Fed indicated 6 more 25bp rate hikes in 2022 and 3 hikes in 2023, meaning the Fed will bring the Fed Fund Rate to 2.75% by 2023, which is above what the Fed considers as neutral rate in the long-run. Fed Chair Powell played down the risk of recession. He remarked that labor markets were “tight to an unhealthy level” and pledged to adhere to the Fed’s price stability mandate.  It is widely expected that the Fed will start quantitative tightening in the May FOMC. Hong Kong Monetary Authority (HKMA) followed the Fed’s move and raise Hong Kong dollar base rate by 25 bps to 0.75%.  It is worth noting that the balances that banks have at the HKMA has been declining since September last year so the HKMA has let the interbank liquidity to drain for some time.   Despite the turmoil in the Hong Kong equity markets over the recent weeks, the USDHKD 12-month forward point remains at a discount of 250 to 300 bps, showing no stress on Hong Kong’s Linked Exchange Rate regime. 

Trading ideas

  • Consider investing in Indonesia. After the massive rallies in response to supportive political rhetoric from Chinese leaders, for the upward moves in the Hong Kong and mainland Chinese stock markets to sustain their advances, investors will need to see the roll-out of more counter-cyclical fiscal policies, monetary easing and infra-structure spending as well as improvements on the property sector.  Otherwise, the omens of rising material costs and drags from the property sector may continue to linger.  Among Asian economies, Indonesia, being an exporter rich in coal and other commodities, is going to be benefited from the rising energy and commodity prices.  Interested investors may take a look at iShares MSCI Indonesia ETF that you can find at Saxo’s platform

Earnings to watch

  • In Hong Kong & mainland China;  Mar 17: China Telecom (00728), CK Hutchison (00001), Fuyao Glass (03606), Powerlong Real Estate (01238)Mar 18: China Merchants Bank (03968), China Molybdenum (03993), Ping An Insurance (02318), Sunac Services (01516)

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