Hang Seng Tech Stocks Soar on Hopes of Fed Rate Cut and China’s Stimulation

Key Points:

1. The Fed's 25 basis point rate cut drives increased demand for Asian tech stocks, with the Hang Seng and Nikkei both rising on stimulus expectations.
2. Speculation around China's potential $12 trillion stimulus package fuels a rally in the Hang Seng, while mainland markets respond positively.
3. The ASX 200 tracks Wall Street's gains, boosted by rising tech and mining stocks amid China's stimulus measures and the Fed's rate cut.

Hang Seng tech stocks rallied sharply as investors reacted to growing optimism surrounding potential economic stimulus from China and the Fed rate cut. The Fed’s decision to lower rates fueled demand for growth-oriented stocks, particularly in the tech sector, while expectations of a significant stimulus package from China further supported market sentiment.

US Markets: Fed Rate Cut Lifts Tech Stocks

On Thursday, November 7, US equity markets showed a mixed performance, with the Nasdaq Composite leading the way, rising 1.51%. The S&P 500 followed with a more modest gain of 0.74%, while the Dow Jones Industrial Average ended the session flat. The Federal Reserve's decision to cut interest rates by 25 basis points was the key catalyst behind the market moves, as investors reacted to the prospect of lower borrowing costs.

The rate cut is particularly beneficial for capital-intensive sectors, such as technology, where companies rely heavily on financing for growth. As a result, tech stocks surged, with investors betting that lower interest rates would support higher earnings and growth potential. The move also raised expectations for a more favorable economic environment, which boosted market sentiment. Overall, the Fed’s action helped propel stocks in growth-oriented sectors, even as broader market indices showed mixed results.

Fed Cuts Interest Rates by 25 Basis Points

On Thursday, the Federal Reserve reduced the Fed Funds Rate by 25 basis points, bringing it to a target range of 4.50% – 4.75%. The rate cut is expected to lower borrowing costs, which could boost earnings for companies with significant capital needs, in turn increasing demand for stocks.

This move came in the wake of Donald Trump’s US presidential election victory, which helped fuel a rally in US equity markets.

In the bond market, the yield on 10-year US Treasuries fell to 4.328%, further encouraging demand for riskier assets.

China Stimulus Speculation Drives Market Rally

On Thursday, Mainland China's equity markets and the Hang Seng Index surged on growing speculation about a potential stimulus package from Beijing. Investors are anticipating an announcement from the National People's Congress Standing Committee, with expectations of new policy measures aimed at boosting economic growth. A significant stimulus targeting consumer demand could trigger another breakout rally in Chinese stocks.

Analysts have been discussing a rumored $12 trillion stimulus package, which includes $6 trillion for local government bond swaps, $4 trillion for a property sector bailout, and $2 trillion dedicated to stimulating consumption. Hao Hong, strategist and economist at AsiaMoney, noted, "Chinese stocks surging again... the $2 trillion for consumption stimulus is new and exactly what the market has been hoping for. It signals a shift in how Beijing plans to stimulate the economy." This potential shift in economic policy helped propel Chinese and Hong Kong stocks higher, as market sentiment was boosted by both the Fed's rate cut and the prospect of fresh government support.

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