BlackRock Fund's Chief Investment Officer for Equities, Quant, and Multi-Asset, Wang Xiaojing, stated that from a monetary policy perspective, if persistent high inflation alters the Federal Reserve's interest rate cut trajectory, leading to a halt in liquidity spillover to other markets—particularly emerging markets—valuation levels across many markets could decline more than anticipated. Since the onset of the Middle East conflict, the correlation between A-shares, Hong Kong stocks, and global equity markets has diminished, with Chinese markets experiencing relatively smaller declines and a quicker recovery. Once short-term supply shocks are resolved, there is no need for pessimism regarding Chinese equities in the medium to long term. As the only two markets globally with both sufficient scale and physical security, China and the U.S. may see their assets command a safety premium. Additionally, China's policy independence is advantageous for international capital, especially funds seeking refuge from geopolitical conflicts, over the long term. From a capital flow perspective, Hong Kong stocks may benefit more than A-shares, particularly under the tech wave, as leading Hong Kong-listed tech companies, backed by national support, could possess greater global competitiveness. Moreover, a moderate rise in inflation could help correct the prolonged negative Producer Price Index (PPI) and promote a positive price cycle.

Regarding the implications of the Fed's decision to maintain interest rates, Jean Boivin, Head of the BlackRock Investment Institute, commented that while the Fed's policy rate guidance appears unchanged, the rationale for further rate cuts has significantly weakened. The Fed's economic projections do not fully reflect the substantial impact of the energy price shock and instead suggest upgraded expectations for growth and inflation, which alone undermines the case for additional easing. Furthermore, most effects of the energy price shock are yet to materialize, posing upside risks to the Fed's inflation outlook. The Fed's assessment of the labor market has remained stable for months, showing no signs of weakening. Acknowledging demographic constraints on labor supply also does not support further cuts from the perspective of the Fed's employment mandate. The weakening case for rate cuts is evident in the fact that only one committee member supported a cut in the recent meeting, down from three in December. As Chair Powell noted, only four to five policymakers currently favor a 25-basis-point cut within the year, contrary to previous market expectations of two cuts. Notably, most questions during the press conference challenged the rationale for further easing. The significance of the energy shock for Fed policy will depend on how long elevated energy prices persist. BlackRock views this as the latest in a series of supply shocks that have long challenged the mainstream view of subdued inflation. While the possibility of the Fed finding justification for further cuts by 2026 remains, the window for such a scenario is narrowing.

Rick Rieder, BlackRock's Global Chief Investment Officer of Fixed Income, noted that the Fed's debates are meaningful, with valid arguments on both sides. From an investment standpoint, the outcome suggests the Fed prefers to await more data, amid the unique context of potential leadership changes in the coming weeks. For investors, this implies interest rates may not deviate significantly from current levels but will remain sensitive to oil price movements and their impact on growth. Consequently, a diversified income approach within portfolios is favored, with a watchful stance over the next few weeks and months as further Fed deliberations unfold.

Navin Saigal, Head of Asia Pacific Fixed Income at BlackRock, highlighted that the Fed's decision to hold rates steady reinforces its cautious, data-dependent stance, especially amid oil-driven inflation risks. Although bond markets reacted negatively, the Fed still projects one rate cut this year and another next year. Should high oil prices tighten financial conditions and hamper growth, the Fed might eventually implement more cuts. This suggests that short-term pressure on Asian currencies from rising energy import costs is unlikely to worsen due to widening interest rate differentials. When assessing various economic scenarios, the initial conditions of Asian economies and the policy flexibility of their central banks are crucial. Prior to the Iran conflict, inflation in most Asian economies was below central bank targets, with bond markets in South Korea, Japan, India, and Australia even pricing in rate hikes—a stark contrast to the U.S., where inflation exceeds the Fed's target yet markets anticipate cuts. While most markets may move in tandem with oil prices in the short term, Asian central banks likely have more policy room than currently priced. Given ongoing uncertainty around Iran, patience is advised, as mispriced valuations may offer attractive entry points. For long-term investors, structural divergences in growth, inflation, and policy make Asian bond duration and yield not only a tactical opportunity but also an increasingly strategic supplement to global fixed income portfolios.

On the impact on Chinese markets, Wang Xiaojing reiterated that any Fed policy shift due to high inflation could reduce liquidity flows to emerging markets, potentially depressing valuations globally. However, A-shares and Hong Kong stocks have shown lower correlation with global markets since the Middle East conflict, with milder declines and faster rebounds. From a macroeconomic standpoint, China's energy transition strategy has been relatively successful, with coal accounting for nearly half of total energy, hydro, wind, nuclear, and solar comprising about one-quarter, and oil and gas making up 20%-25%. While major oil and gas sources rely on imports, alternative pipelines from other countries limit the overall energy gap. For chemical products, China's extensive coal-to-chemicals industry can serve as a cost-effective substitute amid high oil prices, potentially boosting export competitiveness. Thus, after addressing short-term supply disruptions, the medium to long-term outlook for Chinese equities remains favorable. The unique market capacity and physical security of China and the U.S. may grant their assets a safety premium. China's policy independence benefits international capital, particularly that avoiding geopolitical risks. Hong Kong stocks may see greater capital flow advantages than A-shares, especially as state-backed tech leaders enhance global competitiveness. A slight uptick in inflation could also help rectify the long-negative PPI and foster a virtuous price cycle.

Wang Yang, a Fixed Income Fund Manager at BlackRock Fund, pointed out that the key takeaway from the recent Fed meeting is that the Gulf crisis has heightened uncertainty regarding global growth and inflation, slowing or even raising developed market interest rate benchmarks, which constrains China's bond market externally. With the wide China-U.S. rate spread and renminbi stability as a policy priority, room for further domestic rate declines is limited. Coupled with a temporary rebound in domestic inflation, China's bond market faces short-term adjustment pressures, particularly at the long end.