Wall Street has rallied since Donald Trump's victory in the US presidential election, pulling Hong Kong's and other major stock markets up with it.

Some stock analysts now wonder whether the rally's an over-reaction to Trump's economic policies. If that's the case, when will the market correct itself?

The global stocks surge has been largely based on the assumption that Trump will follow through on his plan to boost economic growth and employment by, among other things, increasing public expenditure on infrastructure development. The proposed expansionary fiscal policy is expected to result in a widening budget deficit which would, in turn, push up inflation and interest rates.

The stock market has reacted accordingly. Banks - once the market wall flowers - have moved into the limelight as they stand to benefit from higher borrowing costs. Utilities are no longer the market darling they used to be, as the attractiveness of their dividend payouts has diminished amid prospects of rising interest rates.

Since the US election, the share prices of the major US banks have gained an average of more than 13 percent, while those of utilities, including energy stocks, have lost about 4 percent. Unsurprisingly, gold has lost much of its glitter in the eyes of the investor.

A similar change pattern is taking place in the Hong Kong stock market. The surge in the share price of HSBC - the city's largest financial institution - is a clear indication of investors' new found preference. Noticeably, interest in utilities and interest rate-sensitive property stocks has waned.

Investors in Hong Kong should know that political prediction is a risky business. Nobody is certain what the Trump administration is going to accomplish and how far it can go in making good on his promises.

But, one thing seems certain - US interest rates are going to rise, not so much because of political assumptions but rather real economic data, which show that the US economy is going strong and the unemployment rate is still low. The pressure on prices and wages is slowly building up to a level that will force the US Federal Reserve's hand.

(HK Edition 11/22/2016 page9)