Understanding the Impact of Central Bank Rate Hikes

When a central bank raises its benchmark interest rate, it's often a signal they're trying to combat inflation. Higher rates increase the cost of borrowing for businesses and consumers, which in theory should cool down spending and, consequently, price increases. However, it also typically strengthens the domestic currency and can make equities less attractive as fixed-income assets offer better returns. For example, a tightening cycle in the US often leads to capital flowing out of emerging markets like those tracked by the $HSI, putting downward pressure on their equity valuations, as we've seen at various points, even with $HSI recently around 22671.86.