Hong Kong’s HK Equity Fund say that despite financial market commentary suggesting that the US Federal Reserve has found a way to introduce the tapering of monetary stimulus without sending the markets into a selling frenzy, analysts at HK Equity Fund believe that the expected investor reaction will play out in slow motion.
The Fed announced last week that it plans to reduce the rate at which it buys US Treasuries and mortgage-backed securities by $ 10bn from $ 85bn per month to $ 75bn per month but also promised that, in contrast to a promise made earlier in the year, it would maintain ultra-low interest rates for considerable time even after the unemployment rate in the US falls to 6.5%.
“Markets had expected the Fed to postpone the taper until at least March of next year so the $ 10bn reduction came as something of a surprise. The threat of the taper had largely been priced into the equity markets but although 10yr bond yields initially remained benign, in the days following the announcement, they’ve started tracking uncomfortably close to the psychological 3% mark that sparked a sharp stock market sell off last September when investors were certain the taper was imminent” said the HK Equity Fund analyst.
Investors have greeted the taper with less of a kneejerk reaction but HK Equity Fund believes that markets will continue to adjust the price of risk of holding US treasuries by pushing yields higher. “The US government can’t expect to be able to borrow money cheaply ad infinitum. All the largesse of the last 20 years has to be paid for,” concluded the analyst.
About HK Equity Fund
HK Equity Fund established a presence in Hong Kong in 1995. Today their Hong Kong office is their main hub in the Asia-Pacific region. All of HK Equity Fund’s business groups have operations in the city, making this their largest office in the region outside Australia. From Hong Kong they offer corporate finance and advisory, institutional cash equities and research, equity derivatives and structured products, debt financing and funds management, and environmental financial products, futures, metals OTC hedging and fixed income trading services.
HK Equity Fund Limited
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