Investment Insights

Daily Insights

Focus of the Day

  • US November CPI in line, raising Fed's rate cut expectations next week

Other Commentaries

  • China's state media indicated two-way RMB moves; Chancellor of Germany called for a confidence vote next Monday, adding political uncertainty; Surge in Japan's PPI heightened rate hike hopes

Investment Analysis

Stock Markets Analysis

Stock Markets View

  • Recent US non-farm payroll data indicated a cooling labor market, heightening expectations for a 25-basis- point rate cut by the Federal Reserve in December. Market participants are closely watching inflation data for further insights
  • Despite German equities reaching record highs, weak economic performance across Europe and escalating political instability in France are likely to weigh on corporate earnings growth
  • Political turmoil in South Korea has pressured its equity market but has had limited spillover effects on other Asian markets. Continued rate cuts by central banks in Europe and the US provide greater room for monetary easing in Asia, which supports economic growth
  • Emerging markets have recently rebounded amid heightened expectations of rate cuts in the US and Europe. However, they remain sensitive to fluctuations in the dollar, commodity prices, and local inflation, suggesting potential for ongoing volatility in the near term
  • November's official and Caixin manufacturing PMIs indicate accelerated expansion in mainland China, driving a rebound in Hong Kong equities. Concurrently, a narrowing CPI increase reflects economic dynamics that the market is closely monitoring ahead of the upcoming central economic work conference for potential policy directions
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 rise in US unemployment in November has heightened expectations of rate cuts, driving US Treasury yields lower. Sovereign bond performance is expected to remain stable ahead of the upcoming FOMC meeting
  • Stable corporate earnings prospects, combined with declining Treasury yields, continued to support US investment-grade corporate bonds. Attractive yields are driving sustained inflows into the sector
  • Supported by falling US Treasury yields, Asia USD-denominated investment-grade bonds are showing broad strength. Markets are focused on China’s Central Economic Work Conference scheduled for December
  • Optimistic investor sentiment is providing momentum for US high-yield bonds. Expectations of rate cuts and relatively attractive yields are likely to sustain strong demand for the sector
  • Markets are closely watching whether Chinese property developers will accelerate property launches toward year-end, which could boost December property sales. China property bonds remain in consolidation mode
  • Heightened expectations of US rate cuts reduce the risk of capital outflows from emerging markets, providing relative stability to the region’s bond markets. However, concerns over India’s slowing economic growth and rising inflation warrant close attention
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

Asset Allocation Focus

  • Bonds – The US labor market remains broadly stable, with the Federal Reserve adopting a more cautious stance but still leaning toward further rate cuts. Traders estimate a nearly 90% probability of a rate cut in December, with the yield on the 10-year US Treasury falling back to 4.1%. Expectations of rate cuts are providing support to the broader bond market. However, uncertainty persists regarding the long-term inflationary impact of the Trump administration policies, suggesting continued volatility in Treasury yields. Investment strategies should focus on maintaining durations of 3-6 years to mitigate interest rate sensitivity
  • Equities – Better-than-expected US manufacturing data, coupled with heightened expectations of rate cuts, have propelled the three major US equity indices to fresh record highs. However, current US equity valuations, particularly in high-growth sectors, appear stretched. In the near term, sector rotation is likely to persist. Investors should adopt a balanced approach, combining exposure to both traditional and growth sectors, with a diversified allocation across industries

 

Provided by Hang Seng Investment Services Limited

Investment Commentaries

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