Tiger Brokers is a global brokerage platform that gives Australian investors simple access to ASX and US stocks. Listed on the Nasdaq, the trading group’s Australian division is offering zero brokerage on both US stocks and ASX shares for the first 3 months.

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Fallout from the Russia-Ukraine war continues to dominate the markets, pushing commodity prices to even higher levels.

Higher commodities will inevitably lead to higher inflation, and customers globally are already feeling the pinch. Prices at the petrol pumps are expected to rise in the coming months, as embargoes on Russia take full effect.

In July, fuel importers and refiners in Australia will be required to maintain a minimum number of days worth of fuel for national security purposes.

But Energy Minister Angus Taylor denied the new rules will increase fuel prices.

“The net impact of our fuel security measures is to make sure we have the fuel we need when we want it,” Minister Taylor said.

“But we don’t think the new rules will increase prices at all,” he added.

In the US, the Fed increased its cash rate by 0.25% overnight, and signalled six more rate hikes to follow. 

It was the first time in three years the Fed had increased its rate, as it tries to control the highest US inflation in 40 years.

To understand how all this could impact stocks, Stockhead reached out to Tiger Brokers’ Chief Strategy Officer, Michael McCarthy.

Rising rates cycle

The US Fed has just convened for one of its eight FOMC meetings in the year.

Rising commodity prices will be top of mind for the Fed as high inflation bites into consumer’s wallets . At 7.9%, US inflation is currently growing at the fastest pace in 40 years.

So how would an increase in rates affect asset prices?

According to McCarthy, the support of central banks, through increased money supply and record low interest rates, was the key driver of the huge rise in global share markets that began in 2009.

Now, rampant inflation means central banks have no choice but to withdraw funds and lift interest rates.

“The change in outlook for interest rates is the most important issue for the medium to long term health of all investment assets, “ McCarthy said.

“This hurts stocks in many ways. Higher interest rates mean higher borrowing costs for companies, reducing profits.”

It will also impact equity investments as higher rates mean lower company valuations.

“Additionally, higher deposit and bond returns provide more competition for funds, reducing stocks’ relative attractiveness,” he added.

In this scenario, McCarthy said that investors will need greater sector and stock selection skills.

Markets have already started to factor this change in the investment environment, illustrated by recent pressure on interest rate sensitive sectors such as property and infrastructure.

“In broad terms, it’s likely the shift away from glamour growth stocks, think high-flying tech names, will continue,” McCarthy told Stockhead.

“Stocks with steadier businesses and real pricing power could become much more popular in an inflationary economy, as they are able to respond and potentially increase profits as prices rise.”

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Tesla’s valuation

Former market darlings are also under pressure everywhere, and Tesla is no exception. In 2022, the Tesla share price has tanked by more than 30%.

McCarthy reckons that market hubris last year has led to the detachment of Tesla stock from fundamentals.

What were the top 10 most traded US stocks on Tiger Brokers globally?

  1. TSLA
  2. SE
  3. NIO
  4. GRAB
  5. BABA
  6. AAPL
  7. PLTR
  8. TIGR
  9. FB
  10. BILI

“A challenge for Tesla investors is that at peak share prices, Tesla stock had departed from all traditional valuation measures,” McCarthy explained.

“And the stock was trading purely on the most optimistic estimates of future growth,” he added.

He believes investors must now decide for themselves if this fall is simply a correction, or the result of a fundamental shift in the investment environment.

“There is a significant risk that a higher interest rate environment means the end to the “growth at any price” investment approach,” said McCarhty.

Options to hedge volatility

Options contracts on global tech stocks are still in high favour with Tiger investors, whether its Apple, Tesla, Advanced Micro Devices or electric vehicle manufacturer Nio – according to Tigers’ data.

What were the top 10 most traded US options on Tiger Brokers globally?

  1. TSLA
  2. NIO
  3. PLTR
  4. AAPL
  5. SPY
  6. BABA
  7. AMD
  8. NVDA
  9. SE
  10. QQQ

Data also shows that activity on these options is also higher up and down the strikes.

“An increase in implied volatility in both stocks and the indices reflects increased demand for the risk protection aspects of these important derivatives,” McCarthy explained.

“In other words, whether investors are looking for a bounce in tech stocks, or are insuring their holdings against further falls, more investors are buying options (puts and calls) to cover their market risk,” he added.

Are Chinese stocks still favourable?

Chinese stocks plummeted earlier this week as new Covid-19 restrictions are being imposed in the country.

But overnight, the Nasdaq Golden Dragon China Index jumped 33% after Chinese officials promised to ease a regulatory crackdown, and support property and technology companies.

The gloomy prediction however is that the latest lockdowns would prolong the supply chain problems the world has endured for the last two years.

Hong Kong stocks have underperformed global stocks over the last year. While the US Nasdaq index is down over 20% over this period, the Hang Seng index is down more than 40%.

“This means many global investors are looking at potential bargains on the Hong Kong exchange,” McCarthy said.

“While in the short term the momentum is clearly negative, the 18,000 level has proved important for the Hang Seng in the past.”

“Investors are rightly cautious about “catching a falling knife”, but Hong Kong is clearly on value investors’ radar right now,” said McCarthy.

What were the top 5 most traded Hong Kong stocks on Tiger Brokers?

  1. 00700 – Tencent Holdings
  2. 01810 – Xiaomi Corp
  3. 09988 – Alibaba
  4. 03690 – Meituan
  5. 01024 – Kuaishou Technology
*Pass through fees apply
Options trading carries significant risk and may not be suitable to all investors.
Read PDS, TMD &FSG on Tiger Brokers(AU)’s website before trading. AFSL 300767.
This article was developed in collaboration with Tiger Brokers, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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