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    Investment Insights

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    Stock Markets Analysis

    Stock Markets View

    • Changes in market expectations for the Federal Reserve to cut interest rates have caused market volatility in the US equities. However, the earnings results of tech giants in the first quarter are favorable. The medium to long-term outlook for the US stock market remains supported by the AI concept.
    • The first-quarter economic growth in the Eurozone surpassed expectations, and core inflation within the region has been declining for nine consecutive months, indicating a rising possibility of a soft landing for the economy. This development is expected to benefit European stocks. However, the delay in interest rate cuts by the Federal Reserve may limit the room for the European Central Bank to cut interest rates.
    • In recent days, capital has been flowing into the Hong Kong stock market, which is benefiting from favorable central government policies and high dividend yields. Additionally, the slightly dovish tone in the Federal Reserve's statement will restrict the upside potential of the US dollar, thereby favoring the future performance of Asian stocks.
    • Emerging markets have generally shown signs of improvement in their economic conditions in recent times. However, individual market factors, particularly political influences, may pose risks such as capital outflows and currency depreciation.
    • Expectations of continued capital inflows and the central government’s efforts to stabilize the real estate market through destocking support the upward momentum of the Hong Kong stock market. However, the Hang Seng Index's Relative Strength Index (RSI) has entered the overbought territory, increasing short-term selling pressure.
    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

    • The weaker-than-expected US employment data for April suggests a slowdown in the labor market, resulting in a decline in US Treasury yields from their elevated levels. This development supports the stabilization of sovereign bond performance.
    • Market expectations of the Federal Reserve's monetary easing have strengthened, benefiting corporate profit prospects. The yield spread on US investment-grade bonds continued to narrow, and softening US Treasury yields supported the sector's performance.
    • Mainland China's official manufacturing and non-manufacturing PMI remained in the expansion zone in April, reflecting continued economic recovery, which is conducive to Asian investment-grade bonds maintaining a stable yield spread.
    • Despite increased volatility in risk assets in April, the US high-yield bond market has seen a record issuance of new bonds since the beginning of the year, surpassing the levels seen in 2021. Market demand for high-yield assets supported the sector's performance.
    • After more than two years, another Macau gaming company has successfully issued US dollar bonds. The revival of the new bond market facilitates corporate refinancing arrangements and positively impacts the pricing trends of related bonds.
    • The timing of the Federal Reserve's interest rate cuts remains uncertain, but Chair Powell has indicated that an interest rate hike is unlikely. Emerging market bonds have shown stability, and their relatively high yields are expected to continue attracting capital inflows for higher returns.
    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 – The dovish remarks from the Federal Reserve in early May have led to a reversal and stabilization of US Treasury yields this month. It is expected that funds will continue to flow into high-rated US corporate bonds to lock in attractive yields.
    • Equities – The first-quarter results of US companies generally showed relatively low growth in a high-interest-rate environment, with the exception of a few tech giants. However, the market has already priced in high valuations and growth expectations for these tech giants, so their stock prices are expected to be more volatile. Investors should take note of the strong demand for high-yield Asian stocks, particularly in Hong Kong, where dividend yields have remained at multi-year highs. Institutional investors may find opportunities to accumulate positions during market dips.
    • The growth of US non-farm payrolls in April fell and was much lower than market expectations. The market sees this as a reason for the Federal Reserve to start cutting interest rates in the second half of the year, resulting in a recent pullback in the US dollar. The most decisive factor in the future depends on whether inflation shows a downward trend, while the US dollar index is expected to remain range-bound for the time being.
    • Following the policy decision meeting in early May, Federal Reserve Chair Powell expressed insufficient confidence in a rate cut. However, he confirmed that the next move would not be a rate hike either, leading to a decline in US Treasury yields. Subsequently released US employment figures for April indicated a cooling labor market, further prompting a retracement of US Treasury yields from their high levels. US Treasury yields are expected to be stable in the short term.
    • After a nine-year hiatus, the Central Politburo meeting once again emphasized the need to reduce the housing inventory. The new regulations require cities with residential sales cycles exceeding 36 months to temporarily suspend the sale of new residential lands, linking land supply with destocking progress. It is believed that these measures will help stabilize the mainland property sector.

    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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