Following the Federal Reserve’s (Fed) announcement of the first interest rate cut of the year, global markets reacted differently. On September 18, both the Hong Kong and mainland Chinese stock markets closed lower, with the Hang Seng Index in Hong Kong dropping over 1%. In China, the three major stock indices all saw declines, with over 4300 individual stocks ending the day in the green.
On Wednesday, September 17, the Fed announced a 25 basis point cut in the federal funds rate to a range of 4.00% to 4.25%, marking the first rate cut since December 2024. However, this shift in monetary policy did not have the sustaining positive impact on the Chinese and Hong Kong markets as anticipated, instead triggering significant volatile fluctuations.
The Hong Kong stock market on the 18th displayed a typical “high open, low close” trend. The Hang Seng Index initially surged above the psychological barrier of 27,000 points on the favorable news of the Fed rate cut, reaching a new interim high since July 2021. However, the index quickly retreated and turned downward soon after.
By the closing bell, the Hang Seng Index stood at 26,544.85 points, down 363.54 points or 1.35%, with a total turnover of HK$413.14 billion for the day, significantly higher than the previous day. The Hang Seng China Enterprises Index fell by 1.46%, while the Hang Seng Technology Index dropped by 0.99%.
Leading technology stocks came under pressure, serving as the main drag on the indices. Tencent fell by 2.9%, Alibaba by 2%, JD.com by 1.8%, and Xiaomi by 1.7%. Additionally, XPeng Motors slumped by 4.2%, Geely by 4.8%. Kuaishou, NetEase, and Bilibili all saw declines ranging from 2.4% to 3%.
The A-share market also experienced dramatic volatility akin to a roller coaster ride. The Shanghai Composite Index continued its previous day’s rally initially, climbing by 0.6% and reaching a high of 3,899.96 points, coming close to the 4,000 mark and hitting a new high in a decade. However, in the afternoon, the market sentiment abruptly shifted, leading to a sharp decline, nearly dropping by 2% and almost breaking below the crucial support level of 3,800 points.
At the close, the Shanghai Composite Index was down by 1.15% to 3,831.66 points, the Shenzhen Component Index fell by 1.06%, and the ChiNext Index dropped by 1.64%. Over 4300 individual stocks ended in the red, with only around 700 rising, and the total turnover amounted to 31.67 trillion yuan, significantly higher than the previous trading day by over 760 billion yuan, reflecting the market’s intense volatility.
In terms of sector performance, the major financial sector showed weakness throughout the day, exerting a significant drag on the market. Traditional financial stocks such as banks, securities, and insurance all recorded notable declines, failing to benefit from the rate cut expectations.
After the Fed’s interest rate cut, the non-ferrous metal sector saw a collective sharp decline, leading the declines across various sectors. Stocks of leading non-ferrous metal companies like Jiangxi Copper, Minmetals Corporation, and Yunnan Copper plunged by over 5%, indicating market concerns about the global economic outlook.
Zhang Xiaorong, Director of the Institute of DeepTech Studies, attributed the sharp market decline to a combination of three factors: weakening of financial heavyweight stocks leading to widespread capital outflow, a technical pullback following the favorable Fed rate cut, and profit-taking pressure being released at crucial levels in the market.
Regarding the long-term impact of the Fed rate cut on Chinese assets, Yang Delong, Chief Economist of Foresea Open Source Fund, told the Daily Economic News that the Fed’s rate cut may trigger a new round of global major central bank easing cycles. While China’s benchmark interest rates are relatively low currently, there still exists some policy space for relaxation under the goal of stabilizing growth.