US rate increase should only have short-term impact on Hong Kong stocks: CICC

Hong Kong stocks may experience volatility due to recent US monetary tightening, but the impact is expected to be short-term, according to China International Capital Corporation (CICC). Chief strategist Liu Gang stated that the Fed rate increase would not necessarily lead to losses for Hong Kong stocks, as market conditions are only one of many factors influencing the market.

He noted that when fundamentals outweigh monetary policy, it is not a major factor. However, Hong Kong stocks are currently more vulnerable to changes in US Treasury yields and global liquidity, given the relatively weak domestic fundamentals in China. Liu emphasized that the duration of the Fed tightening would be crucial, as a prolonged cycle similar to 2022 could negatively impact global assets, while a brief or relatively dovish increase might only have a temporary effect.

Hong Kong stocks have underperformed this year despite a stronger yuan, as the city's benchmark Hang Seng Index fell 3.6% for the year, while the tech-focused Hang Seng Tech Index dropped over 20%. Liu attributed this underperformance to the Hong Kong market's composition, which has greater exposure to weaker parts of China's economy, including consumer, e-commerce, and electric vehicles.

The tech rally this year has been driven by mainland-listed hardware and tech companies. Liquidity conditions have also tightened in Hong Kong due to slowed capital inflows from mainland China, a heavy pipeline of initial public offerings absorbing market liquidity, and higher US Treasury yields adding an external headwind. CICC remains cautious, predicting that the Hong Kong benchmark indexes will remain rangebound, as substantial improvement would require factors like fiscal stimulus or a recovery in private-sector credit flows on the mainland, neither of which are currently evident.

A sustained rebound would only be triggered by events such as another "924 moment" or a "DeepSeek moment".