According to Zhitong Finance APP, GF Securities released a research report stating that in September 2024, the Federal Reserve will begin a new round of &#34;preventive&#34; interest rate cuts. However, due to concerns about re-inflation triggered by tariffs, the rate cut may experience a temporary halt. Recently, the July non-farm employment data weakened more than expected, while the month-on-month price growth of core goods (such as clothing, entertainment products, and furniture) that are highly dependent on imports in the July CPI core inflation has also declined. Although the July PPI data exceeded expectations, the portion directly included in the PCE index is limited, and the transmission chain from PPI to CPI and PCE is relatively long. In the short term, the inflation pressure caused by tariffs is manageable. The window for further adjustments in the Federal Reserve's monetary policy may have arrived.
Based on the two criteria of &#34;core competitive industries + marginal improvement in prosperity,&#34; it is recommended to focus on: (1) hard technology sectors with high export growth, such as the overseas computing power industry chain and some new energy segment leaders that have stabilized at the bottom; (2) sectors with clear prosperity trends, such as innovative drugs; (3) Chinese core assets with global competitive advantages, such as leading internet stocks in Hong Kong.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/31146c4bbf6fd41c4504af1d4d85c166.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/31146c4bbf6fd41c4504af1d4d85c166.jpg"/>
<h2>I. Different Models of Federal Reserve Rate Cuts Lead to Significant Variations in Global Asset Performance</h2>
(Only preventive rate cuts are most favorable for equity assets)
Historically, during the past four preventive rate cuts by the Federal Reserve (1984-1986, 1995-1996, 2019-2020, 2024-2025), the U.S. stock market performed well, with market pricing reflecting a recovery in fundamentals. U.S. Treasury yields fell alongside the benchmark interest rate, while the dollar weakened under the influence of interest rate parity.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e00b679202e27226ed76314e27cd12b6.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e00b679202e27226ed76314e27cd12b6.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/111fb072677d59ed3ab25897b84ba596.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/111fb072677d59ed3ab25897b84ba596.jpg"/>
<h2>II. How to Determine the Flow of Funds from Dollar Assets?</h2>
(Wherever there are marginal changes, that is where funds from dollar assets can be attracted)
The logic behind the current global fund rebalancing is that, against the backdrop of weakening fundamentals in the U.S., the dollar, and U.S. Treasury credit, the Federal Reserve is forced to restart rate cuts, leading funds to flow into non-U.S. assets with stronger short-term prosperity. Under this logic, the following assets may continue to attract global funds: (1) safe-haven assets such as gold and cryptocurrencies that have a direct substitute nature for the dollar. (2) Other developed country assets with a shift in fiscal or monetary policy and expectations of fundamental recovery (such as the euro, European stocks, yen, etc.). (3) Emerging market assets with significant marginal changes in fundamentals or policies, which also have favorable odds and payouts (such as South Korea, Vietnam, Brazil, etc.)
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/787d1687ecd8e167d1926ab85eac7049.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/787d1687ecd8e167d1926ab85eac7049.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/8aa88148488f431158f8e5c9178d0794.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/8aa88148488f431158f8e5c9178d0794.jpg"/>
As an important asset in emerging markets, A-shares have significant potential to attract foreign investment under the logic of capital flow favoring non-US assets over US dollar assets: (1) Since July, A-shares have shown a prominent profit effect. (2) After the Federal Reserve's interest rate cuts, the narrowing of the interest rate differential between China and the US will promote capital inflow back to China, providing further monetary policy space to stimulate domestic demand. (3) Marginal changes in domestic fundamentals and policies in the second half of the year are expected to enhance confidence in foreign capital inflows.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/346c4ff1b6dd2c8db8f0f7113c00ba78.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/346c4ff1b6dd2c8db8f0f7113c00ba78.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/b90db155a4ed665d1d0619a9bdf3d0f9.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/b90db155a4ed665d1d0619a9bdf3d0f9.jpg"/>
<h2>III. What types of assets and industries do foreign investors prefer in a region?</h2>
(Foreign investors prefer local, contemporary, and competitively advantageous assets)
What are the characteristics of foreign capital in industry allocation and stock selection? Referring to the historical situations of Taiwan stocks and A-shares, the industries held by foreign capital are basically consistent with the industrial structure, favoring core competitive industries. At the same time, they have a higher tolerance for valuations, focusing more on the stability and sustainability of performance, and favoring industries or stocks with high current prosperity.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d191a20ccb60cfd34bb30904745a5b30.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d191a20ccb60cfd34bb30904745a5b30.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/03f5518776187440359640abb908caed.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/03f5518776187440359640abb908caed.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/633d8290584d9c163a1405ce6a79400d.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/633d8290584d9c163a1405ce6a79400d.jpg"/>
Based on the above analysis, in terms of industry selection and allocation, industries in China that possess contemporary characteristics and global competitiveness, such as innovative pharmaceuticals, leading internet companies in Hong Kong stocks, the Nvidia supply chain, and new energy vehicles, are worth paying attention to

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GF SECURITIES released a research report recommending attention to assets and industries that will benefit during the Federal Reserve's interest rate cut cycle, including: 1) High-growth hard technology sectors, such as the overseas computing power industry chain and leading companies in the new energy segment; 2) The innovative pharmaceutical sector with clear prosperity trends; 3) Chinese core assets with global competitive advantages, such as leading internet companies in the Hong Kong stock market. The report points out that interest rate cuts will affect global capital flows, and non-U.S. assets may benefit

- Guangfa Securities reports that the Federal Reserve may initiate a new "preventive" rate cut cycle in September 2024, though concerns over tariffs may temporarily halt this process.  
- Recent data shows weaker-than-expected non-farm employment and a decline in the price growth of core goods heavily reliant on imports, indicating manageable inflation pressures.  
- The report suggests focusing on sectors with high export growth, clear trends in innovation, and globally competitive Chinese assets, as A-shares show potential for attracting foreign investment amid these dynamics.

GF SECURITIES: Which assets and industries will benefit if the Federal Reserve cuts interest rates?