Tiger Brokers: Why stocks often perform strongly when rates start to rise
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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.
It’s been a strong week on global markets, despite the ongoing risks stemming from the Russia-Ukraine conflict and rising interest rates.
With global commodity prices still holding at or near all-time highs, some US analysts raised the prospect of multiple 50 basis points hikes by the US Fed this year (up from the usual increase of 25bp) in order to contain inflation.
But in his analyst of the latest market moves, Tiger Brokers’ Chief Strategy Officer, Michael McCarthy, noted that market reactions to rising interest rates “are not always clear cut”.
Playing the rates trade
“Higher rates increase borrowing costs for companies, hurting their bottom lines,” McCarthy said.
“Additionally, interest rates are an important component of analysts’ valuation models, and an increase in rates drives valuations lower.”
“Higher interest rates are also more attractive to investors, decreasing the relative attraction of stocks.”
“However, last week US investors ignored these factors. This is not a surprise, and history shows that in previous Fed tightening phases stocks continued to rise for the first year or so.”
To explain why, McCarthy highlighted that rising interest rate environments typically represent a balancing act, where the decision to tighten policy is partly a by-product of economic strength.
In the early phase of the cycle, “investors appear to calculate that the benefits of an improving economy will outweigh the negatives of steeper yields”, McCarthy said.
But in addition, for this particular cycle there is “another factor in play”, he said.
“The longest and strongest bull run in US shares ever has reinforced the idea that “buying the dip” is a profitable strategy,” McCarthy said.
Many of today’s active market participants have never experienced a sustained bear market.
This has introduced a behavioural bias to the share market, that could see US stocks continue to rise for the near future, despite the gathering market clouds.
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
Keeping the options open
As markets grow more volatile, investors are increasingly use options to provide simple hedges and get broad exposure to any upside moves — particularly in larger, highly liquid stocks.
Over the most recent week, some familiar global names such as Tesla, Apple and Alibaba were among the most traded options on the Tiger Brokers platform,
Here’s where investing were positioning during a strong period of trade where the tech-focused Nasdaq index jumped by almost 10% in the space of a week:
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
Awaken the dragon
Along with the strong moves in US tech stocks, investors with exposure to global markets through the Tiger Brokers platform also benefitted from some big gains in Chinese and Hong Kong stock markets.
From Wednesday to Friday, Hong Kong’s Hang Seng index rebounded with three huge daily gains following an extended period of heavy selling.
The move followed a change in communications from Chinese policy makers, who pledged to stabilise markets and offered hints of more stimulus.
And McCarthy reckons there might be more good news on store for Hong Kong investors.
“Although the Peoples’ Bank of China kept interest rates steady, initiatives to manage tech risks, and remove risks associated with Evergrande by ring fencing its securities, brought a positive focus to China associated stocks and ETFs,” McCarthy said.
“Trading volumes rose, and NIO, Alibaba, Bilibili and UP Fintech (parent of Tiger Brokers) ADRS all featured in the most traded stocks on the Tiger Trade platform.”
“The sharp shift from negative to positive momentum for the Hang Seng index saw technical analysts identify a ‘V-shaped bottom’, a sign of potential further gains to come,” McCarthy said.
What were the top 5 most traded Hong Kong stocks on Tiger Brokers?
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