The long-awaited interest rate cut by the global economy has finally taken place.

On September 19, 2024, Beijing time, the latest Federal Reserve interest rate decision was announced, lowering the target range of the federal funds rate by 50 basis points to 4.75%-5.00%.

Since the Federal Reserve started the rate hike cycle in March 2022, the cumulative increase has reached 525 basis points, raising the target range of the federal funds rate to 5.25%-5.50%, and then maintaining the interest rate unchanged for seven consecutive meetings since September 2023.

The result of this meeting implies that the Federal Reserve will enter a rate cut cycle.

Data shows that as of the close of trading on that day, the Dow Jones Industrial Average fell by 0.25%, the S&P 500 fell by 0.29%, and the Nasdaq fell by 0.31%.

Today, the stock markets in Asia-Pacific and emerging markets rose collectively, and the issue of asset allocation was once again focused on.

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Regarding the impact of the Federal Reserve's rate cut on the stock markets in the Asia-Pacific region, Li Zhan, the Chief Economist of the Research Department of China Merchants Fund, believes that as long as the US economy does not fall into a recession, the rate cut by the Federal Reserve is beneficial to the stock markets in the Asia-Pacific region, and most markets are expected to perform positively.

The decline in the US risk-free interest rate will drive global capital to flow out of the United States, and the ones that often benefit are the Asia-Pacific market and other emerging country markets.

As the Federal Reserve starts the rate cut cycle, it is expected that most central banks of countries will follow suit in cutting interest rates, but the extent of loosening, that is, the specific extent of the rate cut, is likely to be smaller than that of the Federal Reserve.

Xingye Global Fund believes that the Shanghai Composite Index has been adjusting for more than three years, and this round of the Federal Reserve's rate cut cycle may last for a while.

Under this background, we may look forward to a recovery in the A-share market during this period.

However, what needs more continuous attention may still be the pace of recovery of domestic economic fundamentals, real estate sales, employment rates, domestic demand data, and other indicators.

Overall, the Shanghai Composite Index has been adjusting for more than three years, and this round of the Federal Reserve's rate cut cycle may last for a while.

Under this background, we may look forward to a recovery in the A-share market during this period.

However, what needs more continuous attention may still be the pace of recovery of domestic economic fundamentals, real estate sales, employment rates, domestic demand data, and other indicators.

Central European Fund believes that for the equity market, the Federal Reserve's rate cut and the US stock market returning to a soft landing trading are expected to accelerate the rebalancing between industries and drive the rise of sectors below the mean level of risk premium.

However, the current expectation for the economic fundamentals has not changed much, and the impact of fundamental factors on the rebalancing trade is relatively weak, with the market being more dominated by the capital side.

In the medium and long term, under the background of a flat economy and no total stimulus policy, the domestic equity market is expected to still reflect a structural market.

Huaan Fund believes that the Federal Reserve's rate cut has a significant impact on global assets because the US dollar is the world's most important reserve currency.

The rate cut leads to a decline in the US dollar's risk-free interest rate, prompting investors to seek higher-yielding assets, which may push up the prices of assets such as stocks, bonds, and real estate.

At the same time, the possibility of the US dollar depreciating increases, attracting international capital to flow to emerging markets and other high-yield areas, which may drive the rise in asset prices in these areas.

Corporate financing costs are reduced, improving financial conditions.

Consumer borrowing costs are reduced, stimulating consumption.

In addition, rate cuts usually boost market confidence and increase investors' risk appetite, with more funds flowing into risk assets such as stocks.

Against the background of the Federal Reserve's rate cut, the renminbi exchange rate is relatively strong, which is expected to attract foreign capital to rebalance its global market allocation and increase investment in A shares, thus forming a certain benefit to the A-share market.

At present, the valuation of the A-share market is already in a relatively low range, and positive factors are gradually accumulating.

As the corporate profit cycle is expected to bottom out and rebound, and the high-quality development of the capital market continues to advance, investors can be moderately optimistic about the A-share market.

Overall, the current performance of the A-share market is suitable for adopting a "barbell" investment strategy.

On the one hand, focus on dividend blocks with low valuation and high dividend yields; on the other hand, pay attention to the technology growth blocks that are more affected by the Federal Reserve's rate cut, especially those companies that benefit from the overseas industrial chain transmission effect and the trend of domestic substitution.

This strategy hopes to find a balance between returns and high growth potential, providing investors with diversified investment opportunities.

Many public funds believe that the Federal Reserve's rate cut will stimulate the domestic equity market, but for investors, asset allocation is equally important.

Many public funds have stated: bond asset investors cannot ignore it.

For the gold assets that have been widely concerned this year, the fund suggests that investors should be cautious.

Li Zhan, the Chief Economist of the Research Department of China Merchants Fund, believes that first, the downward certainty of US bonds is the strongest, and investors can consider the investment opportunities of US bonds first.

Among them, the downward range of short-term bond rates may be greater than that of medium and long-term bond rates, so short-term bonds can be relatively over-allocated.

Secondly, conservative investors can consider gold with defensive industries, and then gradually increase the allocation of rate-sensitive assets.

On the one hand, gold will continue to benefit from the "double-sided" drive of the downward trend of US bond real interest rates and the weakening of the US dollar index; in the "defensive industries," domestically, it is mainly related to high dividend blocks, while overseas markets mainly include necessary consumption, healthcare, and public utilities; on the other hand, considering the current uncertainty about the degree of slowdown in the US economy, once a "hard landing" occurs, even if the rate cut cycle starts, risk assets will also face a certain range of adjustments.

Therefore, it is recommended to consider waiting for the first landing before gradually increasing the allocation of rate-sensitive assets.

Finally, aggressive investors can consider gold as a base while paying attention to the growth of active directions and the prosperity cycle products.

Growth includes electronics, communications, new quality productivity, and national defense military industry; and after the Federal Reserve's rate cut, precious metals benefit, and industrial metals benefit from the rise in demand for bulk commodities.

In addition, growth blocks sensitive to US bond rates such as "innovative drugs" may benefit from the start of the rate cut cycle.

Central European Fund believes that the start of the Federal Reserve's rate cut cycle helps to open up the monetary policy space of our country.

At present, the probability of the central bank's reserve requirement ratio reduction and interest rate cut is relatively high, forming a marginal benefit for the domestic bond market.

However, constrained by factors such as deposit diversion and bank net interest margin, there are still constraints on the domestic interest rate reduction space.

Xingye Global Fund believes that US bonds are another foreign asset with high certainty and winning rate in the rate cut cycle.

In the five "preventive rate cuts," the yield of the US 2-year Treasury bonds has all recorded a decline.

Because bond prices and yields are inversely proportional, the US rate cut cycle is beneficial to US bond funds.

Only in 1998, to deal with the Asian financial crisis during the rate cut, the US dollar index was stronger than Asian currencies, so the decline in US bond yields was smaller.

Looking at this rate cut situation, before the rate cut officially landed, the yields of US 2/5/10-year Treasury bonds have already declined in advance.

As of August 30, the 2-year and 10-year Treasury bond yields have declined to 3.91%, and the 5-year has declined to 3.71%.

Investors also need to pay attention to the upward pressure of US bond rates in the short term.

In the medium term, the focus of the Federal Reserve's policy has shifted from inflation to employment.

Currently, the upward risk of US inflation has weakened, and the downward risk of employment has increased.

In the future, the Federal Reserve may still have a greater room for rate cuts, and US bond rates may still tend to decline.

HSBC Jinxin Fund believes that the performance of the domestic bond market is mainly determined by domestic factors, but in the short term, it will be indirectly affected by the US rate cut.

The bond market has changed a lot after mid-August.

On the one hand, it is the guidance of bond market supervision, coupled with the issuance of government bonds leading to a certain tightening of funds.

In addition, the central bank's net absorption of funds in the open market since late August has to some extent triggered market concerns.

Looking at the performance of various varieties in the market, there is a large differentiation among varieties.

Simply put, the performance of interest-bearing bonds is better than that of credit bonds.

The main reason is that under this year's "asset shortage" market, the interest rate spread of credit bonds has been compressed to a relatively extreme level.

Under such circumstances, any market movement is prone to trigger market vulnerability, and credit bonds generally lack liquidity, which will always lead to the existence of liquidity premium for credit bonds.

Therefore, we expect that the interest rate spread of interest-bearing bonds is not likely to be repaired to the level before August this year.

Since September, the yield of interest-bearing bonds has declined rapidly.

This is partly because some institutions have increased their demand for long-term interest-bearing bonds, and on the other hand, it is indeed affected by the expectation of the Fed's rate cut in advance, and there is an expectation of domestic reserve requirement ratio reduction and interest rate cut.

HSBC Jinxin Fund believes that the adjustment of the bond market in August has also done a liquidity test for the bond market, and it seems that the degree of negative feedback is limited.

We believe that unless there is a significant shift in monetary policy or the emergence of large-scale fiscal stimulus policies, the domestic bond market is unlikely to see a large-scale pullback, and the logic behind it may also involve the pressure of RMB appreciation.

Pengyang Fund believes that the two major bearish factors in the bond market have been digested.

On the one hand, the expectation of incremental fiscal stimulus policy has fallen through, and on the other hand, the funds have also passed the pressure test of last week's net payment of government bonds and the sale of special government bonds smoothly, and the bullish logic has taken the upper hand.

In the second week of September, the transaction area of new houses in 50 cities continued to decline on a month-on-month basis, performing weaker than the same period in history.

The high-frequency direction of the fundamentals and the recently released data are difficult to give the market a new direction.

Under the background of "striving to achieve the annual economic and social development goals," the next window period for policy confrontation may be delayed to late October.

Regarding gold assets, public funds believe that investors should be cautious.

Huaan Fund believes that gold, as a long-term investment asset, mainly reflects its value in fighting against the decline in the purchasing power of credit money.

Several major historical trends are closely related to important changes in the monetary system.

For example, during the Great Depression in the United States in the 1930s, the collapse of the banking system led to the first disintegration of the gold standard, and the price of gold rose from $20 per ounce to $35.

In the 1970s, the Bretton Woods system disintegrated, and gold decoupled from the US dollar, with the gold price soaring from $35 per ounce to $700, which also reflected a major change in the monetary system.

After entering the 21st century, the balance sheets of central banks around the world have expanded rapidly, especially the continuous rise of the United States' debt pressure.

During the subprime mortgage crisis in 2007 and the COVID-19 pandemic in 2020, central banks around the world implemented large-scale quantitative easing policies, which together drove up the price of gold, breaking through to a new high of $2,500 per ounce.

In summary, the core logic affecting gold mainly includes changes in the monetary system, economic uncertainty, inflation expectations, and hedging demand.

Although Buffett has been cautious about gold, believing that it does not create cash flow like stocks or other productive assets, gold is a scarce precious metal and still has important long-term investment value in specific economic environments.Central European Fund believes that in general, during preemptive interest rate cuts, the further downward space for U.S. Treasuries may be relatively limited, while the U.S. stock market and the U.S. dollar often fluctuate and tend to be strong, and gold may face pressure in further rising.

Xingye Global Fund believes that there are many factors affecting gold, and the rise and fall during the interest rate cut cycle are not inevitable.

First, when the Federal Reserve lowers interest rates, the U.S. dollar index does not necessarily fall.

The change in the U.S. dollar index depends on the economic fundamentals and monetary policy performance of the United States relative to other economies, especially Europe.

If Europe enters the interest rate cut cycle before the Federal Reserve, it is expected to support the U.S. dollar index, which in turn leads to gold price pressure.

Secondly, the price of gold also depends on the change in demand for gold reserves, which are further influenced by the international political situation and the change in the status of gold as a reserve currency.

For example, during the implementation of "de-monetization of gold," central banks sold gold reserves to reduce the reserve currency status of gold.

At this time, even if the Federal Reserve is in an interest rate cut cycle, the price of gold is still falling.

Looking at the situation of this interest rate cut, this year, under the continuous fermentation of interest rate cut expectations and geopolitical disputes, the international gold price has risen by 22.13% this year.

Currently, the gold price is still in a high fluctuation stage and may have overpriced the interest rate cut expectations, and investors may need to be cautious.

HSBC Jinxin Fund believes that the issue of gold is relatively complex.

On the one hand, if the U.S. dollar performs weakly during the interest rate cut phase, it is more conducive to gold from the perspective of exchange rates; at the same time, if inflation control is not good in the early stage, it will also further benefit gold.

On the other hand, if geopolitical tensions are eased, such as if the situation in Ukraine is eased, it is not favorable for gold.

HSBC Jinxin Fund believes that we are not particularly optimistic about gold because there are too many factors determining the trend of gold, and many factors cannot be judged.

Therefore, its allocation value mainly depends on the purpose of holding gold assets.

Considering the exchange rate risk that may be brought by investing in overseas assets, we are more willing to regard the purpose of allocating gold as a choice to hedge exchange rate risk.

However, it should be noted that the gold assets that domestic investors can buy are still priced in RMB.

When the RMB is in a strong position, even if overseas gold assets continue to set new highs, domestic gold assets are relatively not so strong after considering the appreciation of the exchange rate.