HSI Falls 0.1%
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Hong Kong equities were initially stable before declining this week. The Hang Seng Index(HSI) fell 0.1%, while the Hang Seng TECH Index(HSTECH) dropped 2.13% to a one-year low. During the first three trading sessions, the HSI traded within a narrow range, with banking stocks repeatedly hitting new highs and providing a stabilizing anchor. On Thursday, sharp declines across Asia-Pacific markets dragged Hong Kong stocks significantly lower, with the Hang Seng TECH Index plunging 2.72% in a single session.
On the macroeconomic front, external pressures intensified significantly. U.S. September CPI rose 3.7% year over year, above market expectations of 3.6%, while core CPI increased 2.6%, also exceeding the 2.5% forecast. September PPI surged 6.3% year over year, far above the expected 5.4% and marking its highest increase since December 2022. September retail sales grew 0.8% month over month, double the forecast, demonstrating stronger-than-expected consumer resilience. Broad-based upside surprises in inflation data directly increased the probability of a Federal Reserve rate hike in October. The Fed’s Williams said there could be “one more rate hike this year,” while Collins called for “a further increase in interest rates before year-end.” Initial jobless claims for the week ended October 10 totaled 199,000, a 57-year low, indicating that the labor market remained tight. On the geopolitical front, a Houthi attack on an airport in Riyadh, Saudi Arabia, left 12 dead and 309 injured. The U.S. military was considering using the “Mother of All Bombs” against energy facilities and nuclear sites in Iran, sharply escalating tensions in the Middle East. The IEA released 20 million barrels of diesel reserves but failed to effectively contain oil prices. EIA crude oil inventories fell by 8.557 million barrels, far exceeding the expected decline of 288,000 barrels.
In China, People’s Bank of China Governor Pan Gongsheng said the central bank would continue to effectively implement a moderately accommodative monetary policy, with no preset target for the renminbi exchange rate. September CPI rose 0.9% year over year, up 0.1 percentage point from August, while PPI increased 5%, its fastest rise in nearly four years, reflecting mounting upstream cost pressures. Total goods imports and exports reached RMB39.94 trillion in the first three quarters, up 18.8% year over year. September exports alone rose 29.6% year over year, or 36.3% in U.S. dollar terms, exceeding expectations for foreign trade. Aggregate financing to the real economy increased by RMB27.46 trillion in the first three quarters, with direct financing accounting for 49.5%, nearly 7 percentage points more than loans. China Securities Regulatory Commission (CSRC) Chairman Wu Qing convened a capital market symposium, where proposals included improving the issuance and listing framework and developing additional policy tools for future deployment. Hong Kong’s Securities and Futures Commission cracked down on IPO subscription manipulation, freezing HK$4.66 billion in assets—the largest amount ever involved in a case of this kind.
Among O’Neil industry groups, the top three weekly performers were Retail/Whlsle-Bldg Prds(G5211IG.HK), up 11.38%; Apparel-Shoes & Rel Mfg(G3141IG.HK), up 6.97%; and Media-Books(G2731IG.HK), up 6.24%. Building products led the market, primarily benefiting from expectations of faster infrastructure investment implementation and improving sentiment toward a recovery in the property supply chain. The continued deployment of RMB800 billion in new policy-based financing instruments supported incremental demand across the infrastructure supply chain. Together with improving expectations for property policy, this drove simultaneous gains in building materials, decorative components, and related subsectors. Apparel and footwear performed strongly on robust overseas demand and order relocation. Year-over-year export growth of 18.8% in the first three quarters and 29.6% in September provided fundamental support for the textile and apparel supply chain. Expectations of orders shifting back from Southeast Asia also helped leading manufacturers continue to deliver earnings growth, consistent with the strong performance of stocks such as CRYSTAL INTL. Media-Books benefited from catalysts related to AI-powered content and favorable cultural and media policies, with increased activity in digital reading, paid knowledge services, and other segments.
The three major U.S. equity indices diverged this week, with value stocks outperforming growth stocks. Dow Jones Indus Actual(0DJIA) gained 1.01%, while the Nasdaq Composite(0NDQC) fell 2.39% and the S & P 500 Index(0S&P5) declined 0.86%.
The key drivers were stronger-than-expected inflation and competing forces within the AI industry. Upside surprises in both September CPI and PPI reinforced expectations of “higher for longer” interest rates, weighing on growth-stock valuations. NVIDIA fell approximately 5% over two consecutive sessions, Applied Materials dropped more than 6%, and memory and optical communications stocks declined broadly. Meta, however, bucked the trend following the release of its Muse Wonder model and the 816-billion-parameter open-source Muse Spark Open model. ASML’s third-quarter net sales of €11.66 billion exceeded expectations, with orders extending through 2030, confirming that demand for semiconductor equipment remained strong. The Trump administration introduced mandatory AI safety incident reporting requirements, adding uncertainty through tighter regulation. The U.S. third-quarter earnings season began, with major banks such as Goldman Sachs and JPMorgan Chase among the first to report, while non-technology sectors made a larger contribution to earnings. The Dow’s relative strength reflected a global defensive rotation out of growth and into value.
The decline in China’s A-share market accelerated this week, led by technology and growth stocks. The CSI 300(000300) fell 3.4% to a one-year low. High-dividend sectors such as petroleum and petrochemicals, coal, and utilities continued to attract capital, while ICBC, China Construction Bank, and Bank of China all reached new highs. Previously strong sectors—including AI hardware, semiconductors, and optical communications—underwent deep corrections as funds moved from highly valued growth sectors into defensive assets.
Policy developments continued to send positive signals. The CSRC held a capital market symposium to gather recommendations on building market-stabilization mechanisms, improving the issuance and listing framework, and preparing additional policy tools, signaling policy support for a market floor. Listed companies issued a wave of positive announcements on share buybacks, dividends, and projected earnings growth. Zhongji Innolight proposed canceling RMB5 billion worth of repurchased shares, while WUS Printed Circuit proposed annual cash dividends of at least RMB2.2 billion. Interest rates on newly issued corporate loans were slightly below 3% in September, while rates on new residential mortgages were approximately 3.1%, indicating a continued decline in financing costs. The export tax rebate rate for new energy vehicles will be reduced from 13% to 9% starting in April 2027, pressuring automakers to accelerate overseas factory construction. China–EU consultations on new energy vehicles established three key principles for hybrid vehicles. Three government departments launched a joint investigation into fractures in the brake pedal bracket of the MAEXTRO V800, while policies imposing stringent requirements on innovative automotive product design were introduced. On the tariff and trade front, Foxconn Industrial Internet and Luxshare Precision became subject to U.S. Section 337 investigations, underscoring persistent technology-sector friction. The Annual Conference of the Financial Street Forum will take place from October 19 to 22, beginning next Monday. Pan Gongsheng, Wu Qing, and other officials will deliver speeches, and more than 100 initiatives and achievements will be unveiled, potentially signaling further financial reforms and market-stabilization policies.
The Top 33 Portfolio recorded an average decline of 2.31% this week, with 17 of its 33 constituents rising and 16 falling. CRYSTAL INTL(02232) led the gains with a weekly increase of 9.33%. It had an O’Neil Score of 71, an RS Rating of 86, an EPS Rating of 93, and an industry rating of 43. Revenue in its latest quarter grew 5.4% year over year, as the global apparel manufacturing leader benefited from strong overseas demand and order relocation. NEW ORIENTAL-S(09901) rose 5.71%, with an O’Neil Score of 68 and an EPS Rating as high as 99. Its latest quarterly revenue increased 23.04% year over year, as the education services leader continued to deliver strong results. ANHUIEXPRESSWAY(00995) gained 4.16%, with an O’Neil Score of 64, an RS Rating of 87, and an industry rating of 62. Its latest quarterly revenue grew 79.7% year over year, highlighting the defensive qualities of this high-dividend toll-road operator. The portfolio underperformed the HSI this week as technology and growth stocks weighed on returns. The Model Portfolio posted an average gain of 3.84%, with all constituents advancing. Among them, BEONE MEDICINES(06160) rose 7.35%, with an O’Neil Score of 71, an RS Rating of 80, and an industry rating of 86. Its latest quarterly revenue increased 29.63% year over year, as progress in its innovative drug pipeline gained market recognition.
From a technical perspective, the Hang Seng Index(HSI) currently stands 0.20% below its 5-day moving average and slightly above its 10-day moving average by 0.1%, but remains 0.95%, 3.31%, and 5.08% below its 20-day, 50-day, and 200-day moving averages, respectively. Its medium-term moving averages are bearishly aligned, indicating a weak trend. The index is 13.79% below its one-year high of 28,056.1 and 7.41% above its one-year low of 22,518.0. On the downside, initial support is at the 24,000 round-number level, followed by 23,500, with strong support at the one-year low of 22,518. Initial resistance is at 24,500, followed by 25,000, with strong resistance near 25,500. The Hang Seng TECH Index(HSTECH) faces a challenging technical setup after hitting a one-year low this week. It is 0.53%, 1.06%, 3.11%, 7.96%, and 16.19% below its 5-day, 10-day, 20-day, 50-day, and 200-day moving averages, respectively. It is down 33.72% from its one-year high and stands just 1.64% above its one-year low of 4,042.05. Support is around the one-year low near 4,040, while resistance is at 4,200 and 4,400. Trading volume for the HSI increased significantly from the previous week, to approximately 1.34 times the prior week’s level, although volume on the final trading day was 15.77% below its 50-day average. Final-day volume for the Hang Seng TECH Index was 27.46% below its 50-day average. The pattern of testing lows on lighter volume suggests that selling pressure has eased somewhat, but buying interest remains insufficient.
Southbound flows shifted from net inflows to net outflows this week, with cumulative net selling of approximately HK$6.637 billion, marking a clear reversal from the previous week. Monday recorded net buying of HK$2.6 billion, followed by net selling of HK$457 million on Tuesday and a modest HK$135 million on Wednesday. Thursday saw net selling of more than HK$5 billion, the week’s largest single-day outflow. Southbound investors shifted from aggressive buying on sharp declines to profit-taking, reflecting growing caution among mainland investors about the near-term market outlook. Against a backdrop of a global AI-stock sell-off and rising expectations of a Fed rate hike, Hong Kong technology stocks came under pressure. Mainland investors showed a clear pattern of reducing exposure to technology and growth stocks while increasing allocations to high-dividend assets.
Global markets faced a threefold stress test this week: the impact of high interest rates, an AI-stock sell-off, and escalating geopolitical risks. Hong Kong equities posted relatively limited losses thanks to strong support from banking stocks, but the Hang Seng TECH Index hit a one-year low and southbound flows turned negative, intensifying near-term pressure. Looking ahead, market attention will focus on the rate-hike path signaled at the Fed’s October policy meeting, whether tensions in the Middle East escalate further, policy signals from the Annual Conference of the Financial Street Forum, and whether U.S. third-quarter earnings validate expectations. Investors may wish to focus on the defensive allocation value of high-dividend assets such as banks and utilities, as well as opportunities to buy on dips across the AI supply chain following the correction. The above analysis is based on publicly available data and market information and does not constitute investment advice. Investing involves risk; exercise caution.
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published on October 16, 2026