Weekly Market Summary

💡1. The Hong Kong dollar is pegged to a tight band of between 7.75 and 7.85 versus the US dollar. It fell to as low as HK$7.8445 last week, its weakest since October 2019. Under Hong Kong’s linked exchange rate system, HKMA is obliged to buy its currency to stop it breaching the top of that band at HK$7.85. The interest rate differential (between the US and Hong Kong) is pushing the exchange rate to the weak side. One-month US dollar Libor, a benchmark lending rate, is around 0.6 per cent – its highest since April 2020, on the prospect of faster Fed rate hikes. In contrast, the Hong Kong equivalent, one-month Hibor, is under 0.2 per cent and barely above its pandemic lows due to the abundance of cash in the Hong Kong financial system.

💡2. The surge in the US dollar as markets brace for a series of interest rate increases is likely to heap further misery onto Hong Kong’s flagging property market. While in China, Foreign investors ditched a record $18bn worth of renminbi-denominated debt last month, with selling accelerating as soaring US bond yields dulled the allure of holding Chinese debt. Offshore investors sold a net Rmb113bn worth of Chinese onshore bonds in March. That took outflows over the past two months to Rmb193bn as concerns mounted over China’s economic growth outlook and the debt’s diminishing yield advantage over bonds denominated in US dollars.

💡3. Bond yields have sprinted higher on ballooning inflation and hawkish comments by central banks. BlackRock experts foresee central banks normalizing quickly - but not slamming the brakes on the economy. This should keep real yields low and underpin equity valuations. Yields of 10-year U.S. Treasuries hit new three-year highs last week, and stocks fell. This understandably created angst about equities, especially about stocks of fast-growing tech companies. Higher discount rates make future cash flows less attractive. BlackRock anticipates inflation settling higher than pre-Covid levels because of the supply shocks triggered by the restart of economic activity and the horrific Ukraine war. This means real yields, or inflation- adjusted yields, should remain low and underpin equity valuations. In addition, they foresee long-term yields rising further as investors demand higher compensation for holding them in the inflationary backdrop.

💡4. “Three things jump out at us as first-quarter results get underway..”. First, the powerful restart is providing a growth cushion for developed markets (DM economies). Second, record-high profit margins bear close watching. DM companies have been able to pass on increased input costs to consumers and kept labor costs in check – so far. Third, we see the economic fallout of the Ukraine war cutting into earnings even as analysts have been revising up estimates across the board. All in all, this led us to reduce our overweight in European equities earlier this month.

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Showing your market sense and ability to provide feasible investment ideas would help to differentiate you from other candidates. Therefore, apart from the weekly news update / investment insights, we have also generated this Weekly Market Summary for you to have a quick understanding of the market development and tips to answer some hot discussion topics. Take a look of the summary and WhatsApp us in the group if you have questions."