The current actual holdings of the short-term, medium-term, and long-term securities investment portfolios in this column are 25%, 37.5%, and 27.5% respectively, with market conditions categorized as neutral, bearish, and significantly bearish respectively. At present, financial markets are most concerned about rising inflation in the United States. The operation of the real economy highly depends on the dynamic balance between inflation trends and the labor market. When the unemployment rate is low or continuously declining, yet the inflation rate rises significantly, it indicates an overheated economy. At such times, strong demand and a tight labor market push wages and production costs upward simultaneously, increasing pressure on central banks to raise interest rates. If inflation rises much faster than improvements in the unemployment rate, it suggests that economic growth is primarily driven by excess demand rather than productivity gains, necessitating a tightening of monetary policy. However, the greatest threat to markets and the real economy is stagflation; on one hand, soaring prices erode citizens' purchasing power, while on the other hand, surging corporate costs and shrinking demand will push up the unemployment rate.
In capital markets, investors' primary concern is whether inflation will force central banks to continue raising interest rates, increasing funding costs and investment risks. In the early stages of economic expansion, consumer spending driven by low unemployment can support corporate earnings, benefiting the stock market. However, once inflation rises to a relatively high level, the tightening of monetary policy leads to reduced liquidity and compressed asset valuations, which will outweigh the benefits brought by economic growth. During an interest rate hiking cycle, rising funding costs cause high-valuation growth stocks to face greater valuation correction pressure; in contrast, companies with strong pricing power capable of passing on costs, as well as commodity sectors such as energy and raw materials, will demonstrate higher resilience against declines. Notably, in recent years, the traditional interaction effect between inflation and unemployment has slowed, and markets have become more direct and sensitive in responding to inflation exceeding expectations, changes in interest rate expectations, and hawkish statements from U.S. Federal Reserve officials. Chief Investment Advisor, Economic Intelligence and Trading Pulse, Leung Yip Ho (Website: www.BennyLeung.com)
*Articles published in Economic Intelligence, whether signed or unsigned, represent the personal opinions of the authors and do not necessarily reflect the views of Economic Intelligence. Economic Intelligence serves as a platform providing free expression of opinions.
In capital markets, investors' primary concern is whether inflation will force central banks to continue raising interest rates, increasing funding costs and investment risks. In the early stages of economic expansion, consumer spending driven by low unemployment can support corporate earnings, benefiting the stock market. However, once inflation rises to a relatively high level, the tightening of monetary policy leads to reduced liquidity and compressed asset valuations, which will outweigh the benefits brought by economic growth. During an interest rate hiking cycle, rising funding costs cause high-valuation growth stocks to face greater valuation correction pressure; in contrast, companies with strong pricing power capable of passing on costs, as well as commodity sectors such as energy and raw materials, will demonstrate higher resilience against declines. Notably, in recent years, the traditional interaction effect between inflation and unemployment has slowed, and markets have become more direct and sensitive in responding to inflation exceeding expectations, changes in interest rate expectations, and hawkish statements from U.S. Federal Reserve officials. Chief Investment Advisor, Economic Intelligence and Trading Pulse, Leung Yip Ho (Website: www.BennyLeung.com)
*Articles published in Economic Intelligence, whether signed or unsigned, represent the personal opinions of the authors and do not necessarily reflect the views of Economic Intelligence. Economic Intelligence serves as a platform providing free expression of opinions.
