Weekly insight: New perspectives to beat the market
Same pressure, different outlookThe start of the second half of 2023 saw overall pressure on the major stock markets during the first week of July. The Federal Reserve's declaration that interest rates will continue to rise dampened the market sentiment, causing the Dow Jones to fall below the 33,700 level; the S&P 500 remained flat, holding onto the 4,400 level with short-term support at 4,350 and 4,300; and the Nasdaq, which has seen significant gains since the beginning of the year, failed to breach the 14,000 mark and remained around 13,700, with the market indicating that US stocks still have the upper hand.On the other hand, the situation in the Hong Kong stock market is markedly different. While it attempted a rebound at the start of the week, with an unsuccessful push to 19,400, it suffered two consecutive days of decline afterwards, breaking several moving averages and reaching a low not seen in over a month. At the point where the market fell by over 500 points, trading volume quickly approached HKD 100 billion, reflecting considerable selling pressure.Interest rates tackle inflation, but fail to consider the economyThe market believes that major central banks will not relax their monetary policies in the short term when there is a shortage of goods and services. This is especially true for countries like the United States, where labor shortages prevent large-scale production of goods. It is expected that central banks in various countries will implement monetary tightening policies to avoid causing high inflation and to adjust supply-side pressures.For a long time, the Federal Reserve of the United States has maintained loose monetary policies to help economic development by keeping interest rates low during economic recessions. However, the situation is now changing. Most fund managers and investment experts believe that if there is an economic recession, the Federal Reserve of the United States will not be able to intervene in time as it did before. Supply-side constraints will persist, causing central bank interest rates to remain high, which will neither stimulate nor suppress economic growth, suggesting that interest rates will remain at restrictive levels.New perspectives to beat the marketWhen the overall economy performs poorly, it has a negative impact on the performance of the overall asset class. It is important to study the price response of each asset to the overall economy and predict their future performance. We also need to pay attention to global trends such as new technologies like digitization and artificial intelligence, and environmental changes such as geopolitical fragmentation, low-carbon transformation, aging populations, and new generations of financial markets to see if there are any investment opportunities in these areas.The core key to investing is how asset prices respond to various factors. We can see that many major trends are increasing current and future investment returns. For example, the rapid rise of the stock market this year, and the recent drop in semiconductor stocks due to US export restrictions on China, show us how new technologies and environmental changes interact to influence market trends.More and more countries and industries are starting a new investment cycle to increase operating income and profit margins. Fund managers attach great importance to the impact of artificial intelligence on investment. In addition, geopolitical fragmentation is causing changes in supply chains around the world, and the importance of national security and supply chain resilience is increasing, which is more important than efficiency. Moreover, expert analysis shows that investment in technology, clean energy, infrastructure, and defense will increase significantly. A large amount of funds is being transferred to low-carbon transformation, and the entire market is changing as a result. Fund managers also observe that in the rapidly developing financial system, existing banks will face regulatory and competitive challenges, and non-bank lending institutions have the opportunity to develop as a result.Interest rates not falling, bonds continue to be popularThe world's economic growth is slowing down, and major central banks are implementing economic austerity policies in the new market environment of the overall economy, leading to increased attractiveness of yield-based assets.In addition, policies in emerging markets seem to be starting to loosen, and fund managers are optimistic about emerging market bonds, especially in Asian emerging markets. The inflation fluctuations that Asian emerging market companies can withstand are different from those of developed markets, reflecting stronger profit margins for Asian emerging market companies and more optimistic growth prospects. It is believed that the upward potential of Asian credit is higher than that of developed markets.Importance NoticeThis document is for general information only. The information or opinion herein is not to be construed as professional investment advice or any offer, solicitation, recommendation, comment or any guarantee to the purchase or sale of any investment products or services. This document is for general evaluation only. 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