China, Hong Kong stocks set for capital rush with 6 Fed rate cuts incoming: Lombard Odier
Funds worth US$7 trillion will shift into equities and bonds, with Thailand, Singapore and Hong Kong benefiting, Swiss private bank says
Swiss private bank Lombard Odier expects the US to cut interest rates six times from September until the end of 2026, causing more capital to flow into emerging markets and benefiting Chinese stocks and bonds in coming years.
The US Federal Reserve will start lowering rates in September and reduce its key rate to 3 per cent from the current 4.5 per cent by the end of next year through a total of six cuts, said Homin Lee, a senior macro strategist with the firm, in a market outlook briefing on Thursday.
This would reduce returns on US$7 trillion worth of money-market funds that invest in deposits, leading to a shift towards equities and bonds for better returns, according to John Woods, Lombard Odier’s chief investment officer and head of investment solutions for Asia.
“US dollar-based investors do not like the outlook of the currency and will switch into other currencies,” he said. “The weaker dollar, in our view, is likely to promote capital flows into the emerging markets, with Thailand, Singapore and Hong Kong all benefiting.”
The outlook was positive for Chinese stocks listed in Hong Kong, mainland China and the US, said Jack Siu, the firm’s head of discretionary portfolio management in Asia.
“The sentiment towards ‘everything but China’ probably will dissipate a bit further from where we were a few years back,” Siu said. “We are seeing an inflow to emerging markets that will benefit China, directly and indirectly, in both equities and bonds.”
The recent rally in the mainland equities market is very much a “liquidity-driven story” rather than one driven by strong corporate earnings, Woods said.