Hang Seng Bank: Global Stocks Likely to Stabilize Post-Fed Rate Cut; Chinese Tech Stocks to Benefit from AI Investments and Commercialization

Hang Seng Bank Chief Economist Liu Jianheng stated that the Federal Reserve's decision to lower the target interest rate by 25 basis points aligned with market expectations. However, the 9-3 voting split among Fed officials reflects lingering disagreements over future rate directions.

Liu noted that while the Fed signaled a preference to hold rates steady in the next move, its dot plot showed minimal changes compared to three months ago. The bank forecasts another rate cut in 2026, followed by one more in 2027, with rates remaining unchanged in 2028.

He added that the Fed avoided delivering a more hawkish message, as some had feared, which should help support economic and market sentiment in the short term.

Hang Seng Bank Chief Investment Officer for Wealth Management Liang Junfen expects global equities to stabilize after the U.S. rate cut, with U.S. stocks potentially hovering near year-end highs.

Looking ahead to 2026, controlled U.S. inflation and the Fed’s accommodative stance will remain key market themes. A weaker U.S. dollar could benefit regional stock markets. Themes such as large-scale fiscal stimulus, corporate governance reforms, and domestic consumption recovery warrant attention. Chinese tech stocks are expected to continue benefiting from AI investments and the commercialization of related hardware and software.

Given that global equity valuations have risen significantly over the past three years, incorporating high-dividend stocks into defensive core portfolios could mitigate risks from heightened market volatility.

In the bond market, the Fed’s announcement of monthly short-term Treasury purchases to replenish reserves may steepen the U.S. yield curve. Hang Seng Bank advises investors to maintain flexible strategies and manage duration to reduce exposure to long-term U.S. bond rate fluctuations.

Meanwhile, emerging market and Asian bonds have seen reduced volatility in recent years, offering relatively attractive yields. Investors should balance allocations between developed and emerging markets.