Guangfa Strategy: Hong Kong stocks perform even stronger after the Federal Reserve resumes interest rate cuts

Zhitong
2025.09.14 23:33
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Guangfa Securities released a research report indicating that after the release of the U.S. CPI and employment data in August, it is expected that the interest rate cut cycle will restart in September. Since September 2024, the Federal Reserve has cut interest rates 3 times, totaling 100 basis points. After the interest rate cuts, the Hong Kong stock market performed strongly, with the Hang Seng Index averaging an increase of 35.4% in a non-recession scenario. In the 12 months following the restart of interest rate cuts, sectors such as technology and healthcare performed outstandingly, while utilities and telecommunications sectors performed poorly

According to Zhitong Finance APP, GF Securities released a research report stating that after the release of the U.S. August CPI and employment data, there is a high probability of restarting the interest rate cut cycle in September. Since the start of this round of interest rate cuts in September 2024, there have been 3 cuts totaling 100 basis points, and the Federal Reserve has paused rate cuts for four consecutive times since March of this year.

The Hong Kong stock market has shown stronger performance after the Federal Reserve restarted the interest rate cuts. Similar to the U.S. stock market, in non-recession scenarios (1995, 2020, 1998), the index fluctuates and strengthens, while in recession scenarios (2002, 2008), the index may still experience about three months of downward movement, followed by a rise. In the 12 months following the restart of interest rate cuts, the sectors with the best average performance are healthcare (+106.7%), technology (+88.0%), consumer staples (+55.2%), and consumer discretionary (+52.6%). The sectors with poorer performance are utilities (+2.3%) and telecommunications (+13.3%).

GF Securities' main viewpoints are as follows:

After the release of the U.S. August CPI and employment data, there is a high probability of restarting the interest rate cut cycle in September. Since the start of this round of interest rate cuts in September 2024, there have been 3 cuts totaling 100 basis points, and the Federal Reserve has paused rate cuts for four consecutive times since March of this year.

Recently, the market has been oscillating between "rate cut trades" and "recession trades," but overall, "rate cut trades" still dominate. Currently, CME interest rate futures pricing indicates: three rate cuts within the year and three rate cuts next year, totaling 150 basis points.

So, how will global major asset classes, U.S. stock sectors and styles, and Hong Kong stock sectors and styles perform after the restart of the interest rate cut cycle?

(1) In the 12 months following the restart of interest rate cuts, the performance of the equity market is more prominent. In non-recession scenarios (preventive rate cuts or rate cuts in response to market risks), the average increase of the S&P 500 is 22.5%, and the average increase of the Hang Seng Index is 35.4%; the U.S. dollar, U.S. Treasuries, and gold fluctuate, while crude oil and copper see significant increases, reflecting pricing for economic recovery.

(2) At the industry level in the U.S., in the 12 months following the restart of interest rate cuts, the sectors with the best average performance are technology (+47.8%), industrials (+22.9%), consumer discretionary (+22.0%), and basic materials (+20.2%); in non-recession scenarios, the average increase in technology reaches +60.2% The underperforming sectors are: Utilities (-0.5%), Real Estate (+3.7%), Consumer Staples (+5.4%), Telecommunications (+8.6%).

(3) In terms of U.S. stock index styles, in the 12 months following the restart of interest rate cuts, the Russell 2000 outperformed the Russell 1000, and the Nasdaq outperformed the Dow Jones. This indicates a market shift towards small-cap indices after the restart of interest rate cuts, although the excess margin is not very large, and the technology index (Nasdaq) significantly outperformed the traditional index (Dow Jones).

(4) The Hong Kong stock market performed even stronger after the Federal Reserve restarted interest rate cuts. Similar to the U.S. stock market, in non-recession scenarios (1995, 2020, 1998), the index fluctuated and strengthened, while in recession scenarios (2002, 2008), the index may still have about three months of downward movement, followed by a period of fluctuating upward movement. In the 12 months following the restart of interest rate cuts, the sectors with the most outstanding average performance are Healthcare (+106.7%), Technology (+88.0%), Consumer Staples (+55.2%), and Consumer Discretionary (+52.6%). The underperforming sectors are: Utilities (+2.3%) and Telecommunications (+13.3%).

Risk Warning: Geopolitical conflicts intensifying, growth falling short of expectations, and weakening model effectiveness, etc

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