Recently, the Federal Reserve announced a 25 basis point interest rate cut as scheduled, and the relevant statements also implied expectations for further easing in the future. The market generally expects that the interest rate cut will be decided to cut by 25 basis points in the remaining two interest rate meetings in 2025 . The Fed’s continued interest rate cuts have attracted the attention of domestic investors …

The mainstream view is that the Fed’s further interest rate cut will prompt global asset relocation, bringing huge incremental funds to the domestic market, thereby further driving the domestic stock market to rise.

So, what will happen in reality?

Does the US dollar rate cut really bring incremental funds to the domestic market?

Admittedly, the Fed’s interest rate cut should theoretically cause the dollar to weaken, and some funds may flow out of the United States, looking for higher-yield assets, thereby pushing up the prices of emerging market assets, including China.

However, will the funds flowing out of the United States really flow to the Chinese market ? We need to analyze in depth:

1. The China-US monetary policy cycle is misaligned

The Fed’s latest statement said that the rate cut is to deal with the possible recession risk of the economy ( “preventive rate cut”), while the People’s Bank of China has been in a cycle of “rate cuts at an opportunity” in recent years, with the goal of dealing with domestic economic slowdowns and deflationary pressures.

Although the Fed has begun restarting interest rate cuts, its current benchmark interest rate (which is still in the range of 4.0 % to 4.25% ) is still far higher than China’s benchmark interest rate ( about 1.5% ). This huge risk-free interest spread makes holding US dollar assets still more attractive than RMB assets, so the motivation for large-scale flow of international “hot money” into China is insufficient.

Overall, the current consensus among the international investor group is that China currently needs greater easing policies to stimulate the economy. This difference in expectations makes international funds more inclined to wait and see.

2. The “thrust” and “tight” of capital flow are insufficient

Capital flows are mostly to pursue profits and avoid risks. If global capital is to flow to our market, it is usually necessary to have a low interest rate environment in the United States (low capital costs, willing to go out to find returns), and our market has clear economic growth prospects and high returns opportunities (willing to come in and invest). This situation occurred in 2008-2012. At that time, the Federal Reserve cut interest rates to zero in order to deal with the subprime mortgage crisis. The domestic economy grew vigorously during the same period, with many investment opportunities and RMB interest rate of 5 % , thus attracting global capital to the domestic market, so that the QFII (the “Complied Overseas Institutional Investor Program” for Global Investment in China) quota has become a scarce resource …

But the situation is just the opposite now.

Although the Federal Reserve is cutting interest rates, the absolute value of interest rates is still high, and the US economic data (such as employment) remains strong. The return potential and security of funds remaining in the United States are not bad. The domestic situation is currently facing challenges such as weak domestic demand, continuous adjustment of the real estate market, and local debt problems. The endogenous driving force of economic growth is under pressure.

International investors’ “risk preference” for Chinese assets has been reduced, and they are more concerned about whether the long-term growth logic of China’s economy is clear, rather than the changes in the US interest rate of a few percentage points.

Domestic stock market is still a barometer of the macro economy

In fact, whether it is recognized or not, the domestic stock market is a barometer of the domestic macroeconomic and a thermometer of investor confidence. For detailed analysis, please refer to the original article ” ” I posted in Qin Circle in the early stage .

Therefore, the long-term trend of domestic asset prices ultimately depends on the fundamentals of the domestic economy. The Fed’s interest rate cut is just an external factor and cannot offset the main internal contradictions. External causes can only work through internal causes.

At present, on the one hand, as an important carrier of Chinese family wealth, the continued downturn in the real estate market has seriously affected consumer confidence and wealth effects, and has suppressed overall risk appetite.

On the other hand, the CPI (Consumer Price Index) and PPI (Producer Price Index) data in August continued to be low, reflecting insufficient demand and pressure on corporate profits. This directly affects the performance of the stock market (corporate profit) and real estate (asset value).

Coupled with the strategic competition between China and the United States, as well as arguments such as “decoupling and breaking chains” and “removing risks”, the uncertainty of global industrial chains and investment layout has increased.

The above uncertainties offset the liquidity benefits brought about by the Federal Reserve’s interest rate cut to a certain extent.