{Economic Information Agency, Oct. 2} Long-term U.S. bond yields remain alarming. Although more Federal Reserve officials have adopted a dovish tone, raising the probability of no rate hike this month to 75%, Hong Kong stocks resumed trading today without support from northbound funds. Financial stocks and tech internet stocks, the two major heavyweight sectors, plunged over 500 points at the opening. Within minutes of opening, the market swiftly broke below the 24,000 level, with no recovery seen during the session. By midday, only three blue-chip stocks were higher. The Hang Seng Index closed the morning session at 23,964, down 648 points or 2.6%, hitting a low of 23,865—the lowest since July 8. The Hang Seng China Enterprises Index stood at 8,026, down 193 points or 2.4%. The Hang Seng Tech Index was at 4,149, down 104 points or 2.4%. With mainland investors on holiday for the National Day break, turnover on the main board reached nearly HK$84 billion in the morning session.
*Ho Kai-chun: Lack of northbound funds makes it unlikely for local money to drive up HK stocks*
The yield on 10-year U.S. Treasury bonds continued to surge to a new high of over 24 years, compounded by the absence of northbound funds, causing Hong Kong stocks to plunge over 600 points today. Senior analyst Ho Kai-chun from Futu Securities told the Economic Information Agency that the recent market situation in Hong Kong has been relatively weak, with trading volumes continuously shrinking. Previously, when tech internet stocks weakened, the broader market could still rely on mainland banks and international financial stocks for support. However, today even heavyweight financial stocks such as HSBC (00005) and AIA (01299) declined, directly dragging the Hang Seng Index below the key 24,000 level. He added that although fundamentals of Hong Kong stocks are not too bad, external factors such as a weakening U.S. dollar index have further worsened the situation.
Looking ahead, Ho said the current forward price-to-earnings ratio of Hong Kong stocks is around 11 times, approaching historical lows, and there appears little room for further substantial declines. Unless there are breakthrough positive developments such as large-scale economic stimulus from Beijing, there is currently insufficient catalyst for a strong rebound. He expects the index to trade sideways in the range of 23,500 to 24,600 in the near term.
Regarding the frequent phenomenon of market short-squeezes during previous northbound trading holidays, Ho believes that given the current weak market conditions and lack of short-term catalysts, the chance of such a rally during this holiday period is low.
*10-year U.S. bond yield expected to remain above 5%*
Recently, more Fed officials have turned dovish. Vice Chair Jefferson stated that the central bank may need more time to assess whether further rate hikes are necessary. Vice Chair for Supervision Bowman also made similar remarks, suggesting the possibility of holding rates steady at the October meeting, pushing market expectations of a pause this month above 75%. Ho said high bond yields are not the core consideration for the Fed's pause on rate hikes; the central bank's decisions still primarily depend on inflation and domestic U.S. economic conditions. He pointed out that the latest PCE data shows inflationary pressures have eased compared to earlier, coupled with oil prices falling back to around $100, reducing the urgency for the Fed to continue hiking rates. Additionally, with U.S. midterm elections next month, even if rate hikes are under consideration, the timing is likely to be postponed to December or the first quarter of next year.
As for the recent sharp rise in U.S. bond yields, Ho believes there are three main reasons: first, the market still perceives a possibility of further rate hikes by the Fed; second, concerns over U.S. fiscal issues; third, the recent surge in corporate bond issuance by AI firms, prompting investors to demand higher yields to compensate for risk.
Ho frankly stated that given the persistent U.S. fiscal concerns and corporate bond issuance wave, the 10-year U.S. Treasury yield is highly likely to remain above 5% in the short term. However, if rate hike expectations cool, yields might see a slight pullback, but will still stay above 5%. As for the peak level of bond yields, he admitted that current yields have reached a new high over 20 years, making it extremely difficult to predict the top.
*HSBC more attractive if it falls further*
Regarding HSBC's significant pressure today, Ho analyzed that a high-interest environment is a 'double-edged sword' for international financial stocks. While rate hikes initially improve net interest margins, if high rates persist too long, they could hurt banks' bond investment portfolio returns and borrowers' repayment abilities, thereby increasing banks' bad debt risks and deteriorating loan quality. He added that HSBC has outperformed the broader market this year, with its share price previously reaching nearly HK$170, prompting many investors to take profits, leading to today's decline—a normal profit-taking correction.
Although HSBC's share price briefly fell below HK$150 today, Ho believes short-term selling pressure remains substantial. Investors could wait for the price to fall further into the HK$136 to HK$143 range before accumulating. As the current price is only a few percentage points above the top of that range, reaching that level should not be difficult. He suggests a short-term target price of HK$160. (nw)
*Ho Kai-chun: Lack of northbound funds makes it unlikely for local money to drive up HK stocks*
The yield on 10-year U.S. Treasury bonds continued to surge to a new high of over 24 years, compounded by the absence of northbound funds, causing Hong Kong stocks to plunge over 600 points today. Senior analyst Ho Kai-chun from Futu Securities told the Economic Information Agency that the recent market situation in Hong Kong has been relatively weak, with trading volumes continuously shrinking. Previously, when tech internet stocks weakened, the broader market could still rely on mainland banks and international financial stocks for support. However, today even heavyweight financial stocks such as HSBC (00005) and AIA (01299) declined, directly dragging the Hang Seng Index below the key 24,000 level. He added that although fundamentals of Hong Kong stocks are not too bad, external factors such as a weakening U.S. dollar index have further worsened the situation.
Looking ahead, Ho said the current forward price-to-earnings ratio of Hong Kong stocks is around 11 times, approaching historical lows, and there appears little room for further substantial declines. Unless there are breakthrough positive developments such as large-scale economic stimulus from Beijing, there is currently insufficient catalyst for a strong rebound. He expects the index to trade sideways in the range of 23,500 to 24,600 in the near term.
Regarding the frequent phenomenon of market short-squeezes during previous northbound trading holidays, Ho believes that given the current weak market conditions and lack of short-term catalysts, the chance of such a rally during this holiday period is low.
*10-year U.S. bond yield expected to remain above 5%*
Recently, more Fed officials have turned dovish. Vice Chair Jefferson stated that the central bank may need more time to assess whether further rate hikes are necessary. Vice Chair for Supervision Bowman also made similar remarks, suggesting the possibility of holding rates steady at the October meeting, pushing market expectations of a pause this month above 75%. Ho said high bond yields are not the core consideration for the Fed's pause on rate hikes; the central bank's decisions still primarily depend on inflation and domestic U.S. economic conditions. He pointed out that the latest PCE data shows inflationary pressures have eased compared to earlier, coupled with oil prices falling back to around $100, reducing the urgency for the Fed to continue hiking rates. Additionally, with U.S. midterm elections next month, even if rate hikes are under consideration, the timing is likely to be postponed to December or the first quarter of next year.
As for the recent sharp rise in U.S. bond yields, Ho believes there are three main reasons: first, the market still perceives a possibility of further rate hikes by the Fed; second, concerns over U.S. fiscal issues; third, the recent surge in corporate bond issuance by AI firms, prompting investors to demand higher yields to compensate for risk.
Ho frankly stated that given the persistent U.S. fiscal concerns and corporate bond issuance wave, the 10-year U.S. Treasury yield is highly likely to remain above 5% in the short term. However, if rate hike expectations cool, yields might see a slight pullback, but will still stay above 5%. As for the peak level of bond yields, he admitted that current yields have reached a new high over 20 years, making it extremely difficult to predict the top.
*HSBC more attractive if it falls further*
Regarding HSBC's significant pressure today, Ho analyzed that a high-interest environment is a 'double-edged sword' for international financial stocks. While rate hikes initially improve net interest margins, if high rates persist too long, they could hurt banks' bond investment portfolio returns and borrowers' repayment abilities, thereby increasing banks' bad debt risks and deteriorating loan quality. He added that HSBC has outperformed the broader market this year, with its share price previously reaching nearly HK$170, prompting many investors to take profits, leading to today's decline—a normal profit-taking correction.
Although HSBC's share price briefly fell below HK$150 today, Ho believes short-term selling pressure remains substantial. Investors could wait for the price to fall further into the HK$136 to HK$143 range before accumulating. As the current price is only a few percentage points above the top of that range, reaching that level should not be difficult. He suggests a short-term target price of HK$160. (nw)
