Hong Kong investors worried about surprise US interest rate policies will likely make investment decisions based on whether President-elect Donald Trump makes good on his threats to impose new tariffs on imports.
Market participants fear that the tariffs will reignite inflation and derail the US Federal Reserve’s rate cutting cycle, keeping borrowing costs higher for longer.
According to Arion Yiu, KPMG partner for financial service, securities and asset management, Hong Kong, retail investors in the city pulled out of most equity funds last year in favour of less risky money market and bond funds.
“The fund flows were mainly driven by the uncertainty about the economic performance in various countries, relatively high interest rates, and the Fed rate cuts since September that surprised many investors,” Yiu tells Asia Asset Management.
He expects market trends to be shaped by US fiscal policies and tariffs, economic stimulus measures in China such as mortgage rate cuts and lower downpayments to buy homes, as well as developments in artificial intelligence and blockchain technology.
Strategies
Investors will likely adopt a more active approach to enhance returns and manage risk more efficiently across public and private market investments, according to Elisa Ng, chief executive officer for Hong Kong at J.P. Morgan Asset Management.
“Hedging strategies for public equities and short-duration fixed income are key areas with traction in our client conversations, especially the latter due to interest rate differences between the US dollar and the renminbi,” she says.
Meanwhile, Yiu expects China’s qualified foreign institutional investors scheme and qualified foreign limited partnership scheme to remain the most popular channels for entry into the Chinese market, especially the Greater Bay Area. Beijing aims to turn the area comprising Hong Kong, Macau, and nine cities in the southern Guangdong province into a finance and business hub by 2030.
Yiu says the two foreign investor schemes coupled with measures to relax their restrictions are attracting more alternative fund managers and smaller financial institutions to expand their business in China.
