[ET Net News Agency, 03 February 2025] During the Chinese New Year period, the U.S.
market's dovish stance became evident. The Federal Reserve of the United States announced
last Wednesday (29 January) that it would maintain interest rates unchanged. However, the
post-meeting statement removed the phrase "progress towards the inflation target,"
implying that there would be no rush to cut interest rates in the future. Additionally,
the White House announced that tariffs on China, Canada, and Mexico would be implemented
starting this Saturday (8th), in line with expectations. However, under the dual pressure
of these dovish factors, Hong Kong stocks lacked strength at high levels. After opening
more than a hundred points lower in the red, the market further retreated, falling below
the 20,000 mark in the morning session, with the decline widening to over 460 points at
one point, hitting a low of 19,764 points.
However, SMIC (00981) rebounded sharply during the trading day, and with speculation
surrounding Alibaba (09988) in the AI concept, the Hang Seng Index narrowed its decline to
149 points or 0.7% at midday, closing at 20,075 points, with a turnover on the main board
of nearly HKD 78.7 billion. The Hang Seng China Enterprises Index reported 7,322, down 59
points or 0.8%. The Hang Seng Tech Index reported 4,691, down 31 points or 0.7%.

"Tao Dong: Fed needs time to observe Trump's new policies"

Jaseper Tsang, the investment director of Rafter Capital, told ET Net News Agency that
although the market had anticipated Trump's tariff increases, uncertainties arise
regarding how China, Canada, and Mexico will respond. If retaliatory measures are
implemented, the risk of domestic inflation in the U.S. will rise simultaneously,
potentially delaying the Fed's interest rate cut process or even prompting a reversal
towards rate hikes.
However, Jaseper Tsang emphasized that the expectation for U.S. interest rates to rise
rather than fall is a long-term view. It is not expected to be confirmed until at least
the fourth quarter of this year or early next year; it is all speculation at this point.
He noted that with Trump imposing tariffs shortly after taking office, the market's
outlook for the future is even more uncertain, significantly increasing the atmosphere of
risk aversion. Given the current expectations for inflation, it is indeed not surprising
for the interest rates to rise instead of fall.
Renowned economist Tao Dong pointed out in a column that consumer spending in the U.S.
remains very strong, supporting the overall economy. The job market is in a soft landing
state, with slowing wage growth but no impact on consumer sentiment. U.S. economic growth
is underestimated, and the inflation situation is relatively delicate. He expects the Fed
to need at least 3 to 6 months of observation period to wait for the new government
policies to be implemented before considering the next steps in interest rate adjustments.

"How China responds is key; long-term depreciation of yuan benefits capital inflows"

Facing the trade war led by Trump, Jaseper Tsang believes that China is relatively in a
disadvantaged position with limited bargaining chips. The market is uncertain about how
China, Canada, and Mexico will respond to the sanctions, making it a focus for the market.
However, he mentioned that besides retaliatory measures, if the aggressive measures by the
U.S. force China to introduce market-expected stimulus measures, especially targeting
stimulating the real estate and consumer demand at the grassroots level, it would be
welcomed by the market.
However, before this happens, Jaseper Tsang pointed out that the hawkish direction
signalled by the Federal Reserve will limit China's future room for moderate easing.
Earlier reports suggested that China is planning to allow the gradual depreciation of the
renminbi to cope with the high-interest environment. He believes that this move will
benefit China in dealing with the impact of the trade war. He mentioned that China is not
eager to see a significant outflow of funds, but if the renminbi gradually and stably
depreciates, it will likely lead to a revaluation of Chinese assets in the global market,
potentially redirecting some funds towards lower flows, which overall is not a bad thing.

"Property markets in China and Hong Kong await stimulus policies"

However, Jaseper Tsang added that attracting foreign capital back with a low exchange
rate takes time and requires good performance of Chinese assets to encourage reinvestment,
making it not an immediate solution. Therefore, it is premature to speculate whether the
aforementioned methods can drive the performance of Chinese properties. Currently, the
primary task for the Mainland China property market is to stimulate demand. If the demand
for property purchases remains insufficient, it presents a difficult situation, and thus
awaits policy intervention.
Regarding local property stocks, Jaseper Tsang believes that while not as risky as
Mainland China property stocks operationally, there are at least over 30,000 potential
supply units to be absorbed in the coming year, making the overall situation less
favourable. He thinks that the current trend of talent-driven property demand is likely to
gradually decline. After the Hong Kong government has significantly relaxed its policies,
it is unlikely to introduce drastic measures again, and the trend in property prices is
expected to remain stable or slightly downward.