GUOTAI JUNAN I published the economic and market outlook report for the second half of this year, regarding the economic outlook for the United States: the contraction in economic growth in the first quarter reflects the impact of tariffs on the U.S. economy. Combined with the relatively stable situation of personal consumption (PCE), the market tends to believe that the actual performance of the U.S. economy remains resilient under the tariff impact. In the second half of the year, consumption will still be the most important factor. The final outcome of the tariffs remains uncertain, but under the baseline expectation, the Trump administration is likely to significantly reduce tariffs on China, especially on mid- to low-end manufacturing Commodities. The U.S. fiscal situation will remain challenging in the second half, prompting the Bank to revise the annual fiscal deficit rate forecast from 6.2% to 6.4%. Overall, the U.S. economy in 2025 should have already surpassed the trough, with the annual core inflation rate expected to remain around 3%. The Federal Reserve's monetary policy will continue to be cautious and wait-and-see. The Bank tends to believe that there will be about two rate cuts by the Federal Reserve this year. Due to inflation and the fiscal deficit potentially exceeding expectations, it is not ruled out that the Federal Reserve may not lower interest rates within the year.
Hong Kong stock market outlook: In the first half of the year, under the bullish breakthroughs in China's AI Industry and the impact of Trump’s tariff policy, the Hong Kong stock market showed a 'N' shaped trend. After the U.S.-China trade talks on May 12 and the U.S. Trade Court ruling on May 29 that invalidated several of Trump's tariff executive orders, the final tax rate level remains unknown, but the worst-case scenario regarding tariffs has gradually become clear; the Hang Seng Index rebounded after testing the 20,000 point mark multiple times, indicating a significant bottoming feature.
Looking ahead, although Trump’s tariff policy may still influence expectations for the Hong Kong stock market in the short term, including liquidity fluctuations that may arise from bond issuance behaviors after the U.S. debt ceiling is breached, the overall impact is gradually diminishing and does not change the mid- to long-term upward trend of the Hong Kong stock market. In the short term, quality dividend sectors represented by central state-owned enterprises (such as Banks, telecommunications, and utilities) will still be a ballast for investment portfolios. In the mid- to long term, technological innovation leading the development of new productive forces is the new momentum for economic growth in China and the rise of the Hong Kong stock market.
