New | China’s growth and frequency of US interest rate increases in 2016 top focus of stock market players

After the exuberance that heralded 2015 when Chinese equities were in ascendance, market analysts are taking a more cautious approach to what lies in store for the year ahead with China’s prospects for growth vying for investor attention with the pace and frequency of US interest rate rises.

Both will be key to Hong Kong’s own fortunes in the year ahead with the local economy tied to China while the local currency is pegged to the US dollar, meaning the city’s interest rates have to shadow America’s.

And while the US is expected to continue raising rates, the world’s second largest economy is busy cutting theirs as China’s central government struggles to hit growth targets.

“Fears of a (China) hard landing persist in the market,” wrote economists at National Australia Bank. “(Chinese) interest rate cuts are likely in 2016 – reducing pressure on indebted firms – but the impact on savers could prove counter-productive to the transition towards a more consumption driven economy.”

In mid-December the Fed raised base rates for the first time in nearly 10 years, moving higher from a rate of zero to 0.25 per cent.

Under current Fed projections the market can expect four further rate increases in 2016, followed by another four rises the year after.

This may be overly optimistic given the economic outlook, say many analysts.