Fed impact on A shares not seen as heavy

China's macroeconomic policies will remain tailored to its own economic needs, though the recent US Fed rate hike could marginally constrain space for monetary easing, experts said.

Their comments were made on Thursday, after the US Federal Reserve announced on Wednesday local time a hike in interest rates by 25 basis points, the first time in three years, and hinted at one more rate hike before year-end. The target range now stands at 3.75-4 percent after the upward adjustment.

The US stock market responded quickly on Wednesday. The Dow Jones Industrial Average dropped 1.21 percent to its lowest level since mid June. The S&P 500 shed 0.45 percent while the Nasdaq edged down 0.01 percent. The US dollar index rebounded strongly to regain the 100 level, while gold — which is usually negatively correlated to the greenback — at one point fell by over 1 percent during Thursday trade.

While central banks in countries such as Saudi Arabia and the United Arab Emirates announced rate hikes shortly after the Fed's move — with more countries expected to follow suit — China will keep to its own approach by adopting a moderately relaxed monetary policy. Timely reserve requirement ratio cuts and structural policy tools will be properly used to boost domestic demand, said Lian Ping, chairman of the China Chief Economist Forum.

The global market has already priced in the latest hike, the impact of which is expected to be more short lived, said Tao Chuan, chief economist of Guolian Minsheng Securities.

The pressure for further tightening in global liquidity has been alleviated, and the resulting shocks to global capital markets, emerging-market currencies and capital flows will become marginally weaker, Tao said.

On top of that, the motivation for foreign investors shifting to renminbi-based assets remains unchanged. A Fed rate hike has widened the inverted China-US interest rate differential, potentially prompting short-term speculative outflows. But in the mid to long run, China's equity and bond markets remain in a reasonable valuation range. Combined with the outlook of steady domestic recovery and improving corporate earnings, RMB assets are increasingly attractive for both value and safe-haven allocation, he added.

Luo Zhiheng, chief economist of Yuekai Securities, said a Fed rate hike usually affects China via interest rate differentials, external demand and market sentiment. But the pressure at present is rising at the margin, though remaining controllable.

Luo said, however, that a sharp correction in US shares, especially artificial intelligence-themed firms, could impair investor appetite for A shares.

However, A shares are mainly driven by China's economic and industrial fundamentals. From the mid to long term, the Chinese stock market is likely to withstand external shocks and perform differently thanks to the incremental supportive policies, inflow of market stabilization funds and accelerated improving corporate earnings performance, he said.

Xia Fanjie, a senior strategy analyst at China Securities, said in a research report that the "landing" of the Fed hike could help build consensus and kick off a new rally in the A-share market.

Investors are advised to closely monitor companies with strong third quarter earnings or higher sector prosperity, including in telecommunications, electronics, defense, oil and gas extraction and oil shipping, Xia said.