"A-Shares Diverge; Indian Stocks Rebound; US Stocks Hit Highs"
Since the Federal Reserve announced a 50 basis point rate cut in September, expectations have been met. Especially with the latest U.S. employment data being quite good, the market has once again become optimistic about the resilience of the U.S. economy, leading to a decrease in rate cut expectations. There are even many institutions predicting that the Fed will not cut rates in November.
As a result, U.S. Treasury yields have risen once again!
What does 4% represent?
It is the level from January 2024, equivalent to returning to a relatively high position.
Now that U.S. Treasury yields have picked up again, there is no need to rush to sell medium to short-duration U.S. dollar bond funds; they can continue to enjoy high coupon payments. Even if there are any fluctuations in the upcoming U.S. economic data, the volatility of medium to short-duration U.S. Treasuries will be lower.
Is it suitable to buy long-duration U.S. dollar bond funds now?
I believe that for those who can withstand high volatility, it is not a problem to start buying again at this position (there is not much room for further decline).
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However, one driving force for the rise of long-duration U.S. dollar bond funds is the expectation of a significant economic downturn in the upcoming U.S. economic data.
If there is no such expectation at all, it is better not to touch long-duration U.S. dollar bond funds, as the volatility is indeed significant.I'm not particularly keen on investing in medium to long-term U.S. dollar bond funds for another reason: the Industrial Bank Global U.S. Dollar Bond Fund (003387), which can be relatively certain to be "heavily invested in long-duration U.S. Treasury bonds," continues to have a purchase limit of 100 yuan, and buying such a small amount is not very interesting.
Moreover, when the Federal Reserve officially cut interest rates by 50 basis points in September, it was aimed at a "preemptive rate cut" to ensure a slow and soft landing for the economy. Considering the latest strong economic data, the expectation of a hard landing in the short term is not high.
If there is a soft landing, it indicates that the resilience of the U.S. economy is still acceptable, and thus the cost-performance ratio of U.S. stocks is higher than that of U.S. bonds.
Recently, the S&P 500 Index has reached a new high again!
Why is that?
There are usually three reasons for the Federal Reserve to lower interest rates:
Reason 1: Normalization (Routine Rate Cut)
For example, the inflation rate has already been reduced from high inflation to a reasonable level, so it naturally follows a routine process of normalization rate cuts, gradually lowering from the original high interest rates to a moderate level. Similar to the "preemptive rate cut" we have heard recently.
Years of normalization rate cuts: 1989, 1995, 2019Reason 2: Panic Rate Cut
For instance, when the COVID-19 pandemic struck in 2020, emergency meetings were held to quickly lower interest rates.
Years of panic rate cuts: 1987, 1998, 2020
Reason 3: Recession Rate Cut
As the name suggests, this occurs when it is realized that the economy is about to enter a recession, necessitating the implementation of rate cuts.
Years of recession rate cuts: 1990, 2001 (tech bubble), 2007 (financial crisis)
According to data from Bloomberg: In the past six rate-cutting cycles, after the Federal Reserve initiated the first rate cut, the U.S. stock market experienced an increase in 4 out of the following year, and a decline in 2 instances.
The two instances of U.S. stock market decline were during the "01 tech bubble" and the "07 financial crisis," which correspond precisely to the third scenario of Federal Reserve rate cuts mentioned earlier, Recession Rate Cut.
The Indian stock market has stabilized after a decline and is beginning to rebound.During the National Day period, it was mentioned that the main reason for the sharp decline in the Indian stock market was the withdrawal of foreign capital from India flowing into China. Now, the withdrawal of foreign capital from India can be considered to have come to an end.
The latest positive event: With the easing of food inflation in India, it indicates an optimistic outlook for India's inflation. The results of the Monetary Policy Committee meeting of the Reserve Bank of India have been announced, changing the policy stance from "withdrawal of accommodation" to "neutral". This shift provides greater flexibility for subsequent responses to the constantly changing economic conditions.
For market expectations, this shift also opens the door for future interest rate cuts by the Reserve Bank of India.
As the Reserve Bank of India maintains the repurchase rate unchanged, the Sensex index has surged by 600 points, returning to above 82,000 points.
In addition, there are no problems with India's fundamentals, and the expectation for its future high economic growth remains unchanged. Therefore, taking advantage of this pullback, I think it is possible to gradually get on board.
However, the Indian funds available in our country - the "Manulife India Equity QDII (006105)" for OTC and the "India Fund LOF (164824)" for the exchange - have a certain error in tracking the Indian index, so the increase may not keep up. This requires mental preparation. But overall, I personally have been persisting in regular investment.
The A-share market has begun to cool down, looking forward to fiscal policy on Saturday.
On October 9th, the A-share market underwent a significant adjustment, with the Shanghai Composite Index returning to around 3,300 points, and the market began to show a clear cooling trend.The good news is that expectations for new policies are on the rise again — according to the State Council's Information Office, the State Council's Information Office will hold a press conference at 10 a.m. on Saturday, October 12, 2024, where Finance Minister Lan Fo'an will introduce the situation related to "strengthening the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development" and answer questions from journalists.
The policy combination has not stopped, but the market, after cooling down, is very likely to see a differentiated market.
In a differentiated market, I believe that only the most outstanding companies can carry the next round of reversals. Among index funds, those that can cover China's outstanding companies include the A50ETF fund (159592) tracking the A50 index, which was launched this year with great fanfare. Its core stock selection logic is to choose core companies in various sub-industries. The advantage of this is that the companies included almost represent the high standards of their respective sub-industries.
In summary, as A-shares have evolved to this position, the next step is to maintain a calm attitude and consider using the A50ETF fund (159592), which covers the leading stocks of various sub-industries, to meet the subsequent differentiated market. Outside the market, one can pay attention to the Yintai China A50 ETF Connect (A: 021208 C: 021209).
Finally, looking optimistically, there is a possibility of both stocks and bonds being bullish — just like the period from 2014 to 2015, the "stock and bond market rising together" occurred against the backdrop of monetary and fiscal dual relaxation. Loose monetary policy is good for the bond market, and loose fiscal policy is good for the stock market. This is somewhat similar to the market environment we are facing now.
Do not rush to clear out bond funds and use all the funds to chase A-shares just because you missed out on A-shares and are unwilling to accept it. For a mature investor, doing a good job in asset allocation is the real free lunch.
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