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Yulu Ao

Hong Kong stocks could face greater volatility from renewed US monetary tightening, but the impact should be short-lived unless the Federal Reserve embarks on a sustained rate-increase cycle, according to China International Capital Corporation (CICC).
The Fed rate increase would not necessarily spell losses for Hong Kong stocks, as monetary conditions were only one of several factors driving the market, said Liu Gang, chief offshore China and overseas strategist and managing director at CICC Research.
“When fundamentals can outweigh [the impact of higher rates], it is not a major factor,” Liu said at a media briefing on Wednesday afternoon.
But Hong Kong stocks currently appeared vulnerable to changes in US Treasury yields and global liquidity, as China’s domestic fundamentals remained relatively weak, Liu said.
“When overall fundamentals are not that strong – and that happens to be the situation now – it will amplify the market’s reaction to US Treasury yields,” Liu said. “That is also why we have seen relatively more market reaction and concern in recent days.”
The US central bank raised its benchmark interest rate by 0.25 percentage points on Thursday for the first time since 2023 to curb persistent inflation.
The duration of any Fed tightening would be critical, according to Liu. A prolonged cycle similar to 2022 would put broad pressure on global assets, while a brief or relatively dovish increase might only have a temporary effect, particularly if tighter policy had already been priced in by investors, he said.


Hong Kong stocks have already underperformed relative to the global market this year despite a stronger yuan, dashing market expectations at the end of last year that a rising yuan would attract foreign capital inflows and lift the market.
The city’s benchmark Hang Seng Index was down 3.6 per cent for the year as of Wednesday’s close, while the tech-focused Hang Seng Tech Index was down by more than 20 per cent.
Liu attributed the underperformance partly to the composition of the Hong Kong market, which has greater exposure to weaker parts of China’s economy, including consumer goods, e-commerce and electric vehicles. Meanwhile, much of this year’s technology rally has been driven by mainland-listed hardware and tech companies.
Liquidity conditions have also tightened in Hong Kong, as capital inflows from the mainland have slowed from last year, a heavy pipeline of initial public offerings has absorbed market liquidity, and higher US Treasury yields have added an external headwind, according to CICC.
CICC maintained its view that Hong Kong’s benchmark indexes would remain rangebound, as the factors needed for a substantial improvement – such as a fiscal stimulus or recovery in private-sector credit flows on the mainland – did not appear to be emerging, according to Liu.
A sustained rebound would only be triggered by something like another “924 moment” – a reference to the stimulus package launched by Beijing in September 2024 – or a “DeepSeek moment”, where the artificial intelligence start-up’s success sparked a wave of investment into Chinese tech stocks last year, Liu said.


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Rise in US interest rates could put pressure on Hong Kong stocks, but the impact is likely to be short-lived, investment bank says


Rise in US interest rates could put pressure on Hong Kong stocks, but the impact is likely to be short-lived, investment bank says.


US rate increase should only have short-term impact on Hong Kong stocks: CICC

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Rise in US interest rates could put pressure on Hong Kong stocks, but the impact is likely to be short-lived, investment bank says

Rise in US interest rates could put pressure on Hong Kong stocks, but the impact is likely to be short-lived, investment bank says