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Friday, July 14, 2017, 18:24
Outside the box
By Peter Liang
Friday, July 14, 2017, 18:24 By Peter Liang

What US Federal Reserve Chair Janet Yellen said on Wednesday at Congress was exactly what the market loves to hear.

She said that the Fed would follow the widely reported rate hike schedule, which was good news for banks, while calming market concern by ruling out the possibility of any sudden big increases in the foreseeable future. 

Her message delighted Wall Street which staged a strong rally, led by bank stocks. Taking note of the buoyant market mood in the US, Hong Kong investors have pushed the benchmark indicator to a record high in two years. 

In early trading Thursday, Hong Kong-listed H shares of mainland banks and insurance companies led the gain with Bank of China surging 1.6 percent while Industrial & Commercial Bank of China moved up 1.2 percent. 

The interest rate projections have also made the stocks of HSBC, the largest Hong Kong bank, and its affiliate Hang Seng, which together dominate the local lending market, look decidedly undervalued. Analysts are issuing buy recommendations for HSBC on the basis that the expected widening of the spread between lending and deposit rates will benefit the major lenders the most. 

Yellen’s prediction of moderate and gradual rate increases has also given public confidence in the rate-sensitive property market a boost. What the market feared most was a sudden big increase in borrowing cost that could send the overheated market into a tailspin.

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