• Policy easing alleviates growth concern: The package should help moderate concerns about China missing the government’s full year GDP growth target of 5%. The package signals authorities’ pro-growth stance and suggests further fiscal policy support and additional bond issuances in the forthcoming months are increasingly likely.
• We stay Neutral on China equities, expecting modest near-term upside: In conjunction with the Fed’s rate cut, we expect offshore China equities to benefit from fund inflows in the near term, given uncrowded positioning. Trading at 9x P/E, the Hang Seng Index could continue to enjoy near-term momentum and trade up to a 19,000-20,000 range. For the index to sustainably break above 20,000, markets will likely need to see improving economic prints, fading deflationary pressure, and lessening geopolitical risks.
• We continue to favour selectively positioning into high-dividend non-bank state-owned enterprises (SOEs) and high-quality growth equities more broadly. We are also overweight the consumer discretionary, technology, and communication services sectors.
• Further CNH strength likely to be limited: Improved sentiment towards China’s risk assets is supportive of a stable CNH but further CNH strength is likely to be limited by expectations of an additional RRR cut. Also, technical charts argue USD/CNH is close to oversold.

For full market outlook insights, read our full Global Market Outlook Report now.

• Fed plans substantial policy easing: The US Federal Reserve lowered its policy rate by 50bps, from a 23-year high of 5.5%, slightly exceeding market expectations. It was the largest rate cut at the start of a Fed policy easing cycle since 2007. The Fed also projected a total of 100bps and 200bps of rate cuts by end-2024 and end-2025, respectively, as inflation is seen falling towards its 2% target.
• Fed policy easing to support an economic soft-landing: Equity and bond markets had performed well going into the Fed policy meeting, suggesting markets are pricing in a soft-landing for the US economy. In this scenario, Fed rate cut expectations lower bond yields, in turn easing financial conditions and supporting economic growth and corporate earnings.
• US equities likely to benefit the most from significant policy easing: A US economic soft landing helped by sizeable monetary policy easing is likely to benefit US equities the most: The supportive policy backdrop and a strong earnings outlook leaves us overweight US equities within a broadly diversified allocation.
• Average into any rebound in bond yields: Markets are pricing in close to 200bps of rate cuts by end-2025. A Fed path less aggressive than this would likely lead to a rebound in bond yields and the USD in the near term. We would use any such bounce in US government bond yields towards 4% to lock in an attractive income.

For full market outlook insights, read our full Global Market Outlook Report now.

• Remain overweight US equities: The second half of an election year is normally still positive for the US stock market, despite the risk of increasing volatility just before the election.
• There are 3 main scenarios:
  A clear Democrat victory: Fiscal policy will likely remain tilted towards high spending and raising taxes on the wealthier segments of society. It would also signal continued sponsorship of the decarbonization agenda.
  The House and Senate are split: Dramatic policy changes would be challenging to implement, probably resulting in the least fiscally-irresponsible outcome.
  A clean sweep for the Republicans: Trade tariffs would likely be introduced. Oil may be promoted over green energy. Fiscal policy is likely to remain very loose as the Trump tax cuts implemented during his first term are extended indefinitely.

• Making predictions based on political outcomes is always risky: Remember 2016 when the overwhelming narrative was that a Trump win would be bad for equities. On confirmation of his victory, the stock market dipped intra-day, but then rose over 30% in the next 14 months.

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