The US dollar accounts for more than 60% of global trade settlements in history, and even today, it still accounts for 47.5%. Therefore, the US dollar interest rate cuts and interest rate increases have a significant impact on the liquidity and capital inflows and outflows of other stock markets around the world, market capital expectations, and even global real estate and stock prices.

The historical impact of the Fed's interest rate cuts on the Chinese stock market

In 1989, the Federal Reserve cut interest rates, which continued until 1992, from 9.8% to 3%, a cumulative decrease of 680 basis points. my country's A-shares rose from the lowest point of 95 points to 1429 points in 1992, a 15-fold increase. The US stock market also began a decade-long bull market. The Hang Seng Index also rose from 2,000 points to 12,000 points in 1993, a 6-fold increase.

In 1995, the Federal Reserve cut interest rates again, from 6% to 5.25%. Although it was only a 75 basis point reduction, the effect was surprisingly good. The A-share market rose from 500 points to 2,200 points, a more than four-fold increase, opening a six-year bull market. The Hang Seng Index also rose from more than 6,000 points to 18,000 points in 2000, a three-fold increase.

In 1998, the interest rate was cut by 75 basis points. The Shanghai Composite Index rose by 30% in one year. The Hang Seng Index once again rose from a low of more than 6,000 points to 18,000 points.

In 2001, interest rates were cut for 30 months, with a cumulative reduction of 550 basis points. However, the Nasdaq plummeted by 60%, and the A-share market fell from 2,200 points to 998 points four years later. The Hang Seng Index fell from 14,000 points to 8,000 points.

In 2007, the interest rate was cut by 500 basis points, and the A-share market rose from 4,000 points to 6,124 points. The Hong Kong stock market rose from 20,000 points to 32,000 points.

In 2019, the interest rate was cut by 75 basis points and the A-share market stabilized at 3,000 points.

In 2020, the interest rate was cut by 150 basis points in one month, and the A-share liquor, consumption, and technology sectors soared, breaking out of the two-year structural market. The valuation of large consumption and liquor reached 60 times the price-earnings ratio. The Hang Seng Index rose from 21,000 points to 31,000 points.

On September 18, 2024, the Federal Reserve began to cut interest rates again, first by 50 basis points. According to historical estimates, this time the rate cut will last about 2 years.

There have been many interest rate cuts in history, and as long as the A-share market is at a low valuation, it has basically skyrocketed. If the US does not cut interest rates, we dare not flood the market with money, because the money you release will have to go to the US to earn the 5% bank deposit interest. As soon as the US cuts interest rates, we dare to flood the market with money. For example, in 2008, more than a year after the US cut interest rates, we flooded the market with 4 trillion yuan, and the A-share market rose again, from 1664 points to 3400 points.

This time, the Fed’s interest rate cut cycle started, and the valuations of A-shares and Hong Kong stocks were at historical lows, and at historical super lows. They have been falling for four consecutive years. The Hang Seng Index has been falling for seven years without rising. Many core assets have fallen below a 10% dividend rate. Individual stocks have fallen by 90%, and the A-share market has also fallen miserably. Therefore, this Fed’s interest rate cut may once again start our journey of wealth creation in a few years. Because capital expects the dollar to depreciate, and interest rates continue to fall, they will sell dollars or take money out of US banks to invest in other parts of the world (including Hong Kong and mainland China), which will push up stock prices in both places. The continuous decline of Hong Kong stocks in the past four years is directly caused by the continuous withdrawal of foreign capital, which went to deposit money in US banks to earn interest.