Hong Kong investors hunker down for Fed decision, jumbo IPO Hong Kong stocks are gearing up for an eventful Thursday, when a decision on interest rates by the US Federal Reserve will coincide with an initial public offering (IPO) poised to be the city’s largest in seven years, testing investors’ appetite for risk. An unexpected increase in US borrowing costs, or even a hawkish tone from new US Fed chairman Kevin Warsh, risks derailing a fragile rebound in Hong Kong stocks, which was aided by a rotation out of high-priced artificial intelligence bets in neighbouring markets. The IPO for Zhongji Innolight, the Chinese maker of optical transceivers used in AI data centres, may add another layer of uncertainty at the start of trading in Hong Kong, as the public listing drains about US$8 billion from elsewhere in the markets. The Fed rate policy meeting will be closely scrutinised by investors in both Hong Kong and abroad. Anticipation over monetary tightening is driving US Treasury yields higher and upending technology stocks trading at stretched valuations. Warsh, who took over the world’s biggest central bank in May, struck a hawkish tone in his first rate decision meeting last month, while also pledging to uphold the Fed’s independence in testimony before lawmakers. “For markets, the July meeting is therefore less about whether the Fed hikes this week and more about how close it believes the economy is to the tripwire,” said Stephen Innes, a managing partner at SPI Asset Management. “A hold accompanied by stronger language on inflation and geopolitical risk could still tighten financial conditions, particularly if Warsh refuses to push back against the market’s hawkish pricing.” The probability that the Fed will raise the benchmark interest rate on Thursday by 0.25 percentage points had risen to 37.9 per cent, up from 30 per cent a month ago, according to CME Group. In an article on Monday, Citadel Securities predicted the Fed would deliver such an increase this week to validate Warsh’s commitment to price stability, adding that the market may have underestimated the extent of a hawkish shift at the Fed. A nearly 20 per cent jump in oil prices this month following a flare-up in Middle East hostilities may prompt the Fed to reassess its policy setting, despite a softening of recent US inflation data. Higher US interest rates typically negatively affect stocks in Hong Kong and the rest of Asia by spurring outflows and compressing equity valuations. Higher US interest rates On Thursday, Hong Kong will also see the Zhongji Innolight IPO, the exchange’s biggest since Alibaba Group Holding’s US$12.9 billion offering in 2019, testing a market already flooded with new share sales this year. Alibaba owns the South China Morning Post. Shenzhen-listed shares of Zhongji have risen nearly 50 per cent this year on rising demand for its products from its clients, including Nvidia and Alphabet, that are engaged in data-centre buildouts. Eoptolink Technology and Suzhou TFC Optical Communication, Zhongji’s domestic rivals, are also in the offering pipeline. Both have unveiled plans to sell shares in Hong Kong. https://www.scmp.com/business/markets/article/3362123/hong-kong-stocks-hunker-down-day-packed-fed-decision-jumbo-ipo-debut?pgtype=live (ICE HONG KONG)

Fonte notizia: South China Morning Post