Shenwan Hongyuan (Hong Kong) Focuses on Future Inflection Points and AI Opportunities
Zhitong Finance Network, October 3, 2023 – Shenwan Hongyuan (Hong Kong) has released a research report highlighting its focus on major inflection points in the future and its optimism about AI application opportunities. The company maintains its forecast that the Federal Reserve will raise interest rates once more this year, but predicts that the interest rate cut next year may exceed expectations.
According to the report, domestic economic data indicates that consumption, investment, and export growth are showing signs of bottoming out, marking the start of the third stage of the economic “N-shaped recovery.” The loose policy pattern is expected to continue until the first half of 2024, supporting a moderate economic recovery.
In terms of industry configuration, Shenwan Hongyuan places emphasis on laying out major turning points in the future, with electronics being the first choice. In a volatile market, allocations to military industry stocks are on the high side. The report highlights that stabilizing market expectations may strengthen the logic of special valuations. Additionally, the company remains optimistic about AI application opportunities in the medium term.
The report also discusses the outcomes of the Federal Reserve’s September interest rate meeting. While the central bank decided not to raise interest rates, the dot plot indicates that interest rate cuts in 2024 may be higher than previously expected. Moreover, the Federal Reserve revised its economic growth forecast upwards, leading to an increase in U.S. bond interest rates and the U.S. dollar index.
The interest rate meeting of the four major central banks has further intensified the rise in the interest rate difference between the United States and other countries’ 10-year Treasury bonds. This, in turn, will continue to compress offshore U.S. dollar liquidity. The report suggests that the more-than-expected hawkish remarks from the U.S., coupled with the relative advantages of the U.S. economy, will keep U.S. bond interest rates and the U.S. dollar index high in the second half of the year, further exacerbating the pressure on offshore U.S. dollar liquidity.
In China, economic data indicates that consumption, investment, and export growth are bottoming out, signaling the start of the third stage of the economic “N-shaped recovery.” The report expects the loose policy pattern to continue until the first half of 2024, supporting a moderate economic recovery.
Regarding the stock market, global stocks have weakened amid tightening trading conditions. Shenwan Hongyuan’s industry configuration strategy focuses on major turning points in the future, with electronics being the preferred choice. The report suggests that the allocation to military industry stocks is on the high side in a volatile market. Additionally, stabilizing market expectations may strengthen the logic of special valuations. In the medium term, Shenwan Hongyuan remains optimistic about AI application opportunities.
For the strategic asset allocation in the fourth quarter, a balanced strategy of stocks and bonds is recommended. The Japanese and Indian markets are preferred in the stock market, while investment-grade bonds are recommended in the bond market. Asian stocks, particularly in Japan and India, have performed well this year, driven by positive cyclical factors, demographic trends, and structural reforms. India, in particular, has seen investment value in its local equities. In addition, the report suggests maintaining a high level of allocation to global investment-grade bonds to prepare for the shift in economic trends towards sustainable development, as the high-interest-rate environment is expected to persist.
The report concludes with a warning from the financial community that the content, data, and tools in the article do not constitute investment advice and should be used for reference only. Investors are reminded of the risks associated with the stock market and the importance of exercising caution when making investment decisions.
Disclaimer: This article does not constitute investment advice and is for reference purposes only.