Hong Kong Stocks Climb As Fed Policy Downshift, China Recovery Bets Draw Global Funds

• The Federal Reserve raised its key rate by 25 basis points in its first meeting of the year, downshifting from 50 in December and 75 in November
• Slower increases will boost risk appetite and support the Hang Seng Index members, Natixis economist Ng says

The Federal Reserve interest rate announcement is displayed on the floor of the New York Stock Exchange on February 1. Photo: AP

Hong Kong stocks rose for a second day, buoyed by overnight gains in US equities after the Federal Reserve downshifted for a second time in its policy tightening amid slowing inflation.

The Hang Seng Index jumped 0.1 per cent to 22,095.95 as of 10.40am local time. The Tech Index advanced 1.3 per cent while the Shanghai Composite Index fell TK0.1 per cent.

Alibaba Group climbed 0.2 per cent to HK$110.20 while Tencent Holdings rose 0.9 per cent to HK$388.40 and Meituan added 0.1 per cent to HK$180.20. BYD surged for a third day, rising 0.9 per cent to HK$262.20. Baidu surged 6 per cent to HK$153.00.

The Fed raised its key rate by 25 basis points to a range of 4.5 per cent to 4.75 per cent at its first meeting of the year, following reports of smaller increases in consumer prices in recent months. It has now tempered its tightening drive, following a 50-basis point hike in December and 75 in November.

“The market reads the decision as the first sign of a possible pivot toward growth,” said Gary Ng, an economist in Hong Kong at Natixis. “It means the room for further rate hikes is limited and this will boost the investors’ risk appetite.”

Fed chair Jerome Powell said at a media briefing that the disinflationary process in the US had started, although he cautioned it was premature to assume the fight against inflation was over. The central bank raised its key rate by a total of 425 basis points in 2022 in the most aggressive tightening since the early 1990s.

Fed Chair Jerome Powell briefs US media in Washington on February 1 after its rate decision. Photo: Xinhua

The Hang Seng Index has rallied by about 50 per cent from its trough in late October, helping lift the city’s market capitalisation by more than US$1.5 trillion. This year’s advance of more than 10 per cent, on the back of China reopening bets, made it the best performer among global stock benchmarks.

The Hong Kong Monetary Authority immediately raised its base rate to 5 per cent from 4.75 per cent, mirroring the Fed’s increase in lockstep under its linked exchange rate system to preserve the local currency peg to the US dollar.

The S&P 500 jumped 1 per cent while the Nasdaq Composite surged 2 per cent after the Fed decision. Prices in major Asia-Pacific markets also rose on the bullish sentiment. The Nikkei 225 in Japan and Kospi Index in South Korea climbed 0.2 per cent. The S&P ASX 200 Index in Australia gained 0.2 per cent.