The Fed will continue its hiking cycle this year and gradually reduce its balance sheet amid strong U.S. economic backdrop. The recent correction in U.S. equity market has triggered sell-offs in the global equity markets. However, the prospects of U.S. tax reform and the strong earnings growth should continue to support the U.S. equity market. The healthy economic condition and strong corporate growth should lead to a stable rise in U.S. equities in long-run. The dollar should remain weak in the first half of the year, as more central banks are moving to normalize monetary policy. The capital outflows accompanied with the weakening dollar are likely to benefit Asian equity markets. We see huge demands of HK stocks from mainland investors as they are looking for alternative investment options while financial reform in China is still under progress. The continuous money inflows to Asian equity markets and southbound investment are supportive to HK stocks. The improving corporate earnings will ultimately support market valuation, and we see the recent correction in HK stocks as a buying opportunity for long-term investment. The large-cap companies with strong growth prospects and stocks with reasonable valuation should gain support amid risk aversion. We favor Chinese banks, Chinese insurers, Chinese property developers and pharmaceutical sector, investors are advised to buy into those stocks after the Chinese Lunar New Year as a long-term holding.

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