《Hong Kong Strategy Review》I. Updates on Key Data and Market Views
Review: Haitong International issued a warning titled "Cold Wind in Summer" on May 6, and global stock markets indeed fell sharply in July as expected; on August 16, we highlighted the risk of volatile divergence in the autumn market; on September 27, we proposed that U.S. stocks would remain strong supported by fundamentals, with the AI rally shifting toward application-led momentum. Last week, U.S. stocks remained resilient amid overseas bond market shocks, but markets across Europe, Asia, and the Pacific broadly declined, with weak market breadth.
II. Market Outlook — U.S. and European bond turmoil unlikely to trigger crisis; maintain view that "global equities may shift from risk-off to risk-on in October"
The U.S. bond turmoil is approaching a turning point; the sharp rise in the 10-year U.S. Treasury yield in late September is unlikely to be sustained. The current 10-year U.S. Treasury yield has risen to around 5.3%, having already sufficiently priced in macro fundamentals this year. The main concern has shifted from the level of interest rates to the pace of their rise, transitioning from orderly to accelerated amid high volatility. A high-level consolidation and subsequent pullback in long-term U.S. Treasury yields in October is highly probable: weakening employment and widening credit spreads are increasing the likelihood of downward policy expectations, while transactional factors after quarter-end may gradually fade. Recent European bond market turbulence reflects a repricing of country-specific fiscal risks, which is unlikely to evolve into another European debt crisis, and may instead drive capital flows into U.S. Treasuries as a safe haven.
Fundamentals will be key to the fourth-quarter market. U.S. economic data have exceeded expectations to a growing extent, while China's manufacturing PMI has returned to expansion territory; earnings forecasts for the S&P 500 continue to be revised upward, with marginal improvement in earnings forecasts for Hong Kong stocks. We remain positive on U.S. equities in the fourth quarter, but after reaching new highs, their risk-reward ratio has declined; caution is warranted against short-term momentum-driven spikes. We maintain our view that Hong Kong stocks are likely to rebound in October; the correction has significantly exceeded fundamental justifications, and a rebound could be triggered merely by short covering. Short-selling and valuation indicators have reached extreme levels, suggesting October may see weakness first, followed by strength.
III. Investment Strategy: Defensive counterattack, adapting to the era of high interest rates and high volatility; seek opportunities in applications of super intelligence, and allocate to deep-value non-tech sectors
Catalysts for the rebound in U.S. and Chinese stock markets in the fourth quarter: easing of geopolitical risks; stabilization and pullback in long-term U.S. Treasury yields; continued diffusion of applications of super intelligence in the U.S.; and sustained policy stimulus in China's economy. Currently, the rise in long-term U.S. interest rates, deteriorating risk sentiment, and short-term earnings have been largely priced in. However, the market's pricing of natural growth rates for tech companies remains severely inadequate—this is the real opportunity in the AI season.
Theme One: Select global technology leaders and capture growth opportunities from the diffusion of applications. AI applications will experience a boom in prosperity, with industry value shifting toward reliable security and inference applications: cybersecurity, model governance, and private deployment will continue to gain importance; emphasize AI application rollouts in biomedicine, embodied intelligence, and other fields; AI ecosystem integration opens new monetization avenues for existing traffic, data, and customer relationships; on the hardware side, focus on opportunities in domestic computing power, semiconductor equipment, and advanced packaging.
Theme Two: Allocate to deep-value assets and prepare for enduring the era of high interest rates and high volatility in Hong Kong stocks. Focus on opportunities in nonferrous metals, power equipment and energy storage, chemicals, and digital assets; select Hong Kong internet and tech leaders, mainland high-dividend assets, Hong Kong local stocks, and Macau local stocks.
*Yi-Dong Zhang, Head of Research and Chief Economist, Haitong International
*Articles published on "ET Net", signed or unsigned, represent the authors' personal opinions and do not necessarily reflect ET Net's stance. ET Net assumes the role of providing a free speech platform.
Review: Haitong International issued a warning titled "Cold Wind in Summer" on May 6, and global stock markets indeed fell sharply in July as expected; on August 16, we highlighted the risk of volatile divergence in the autumn market; on September 27, we proposed that U.S. stocks would remain strong supported by fundamentals, with the AI rally shifting toward application-led momentum. Last week, U.S. stocks remained resilient amid overseas bond market shocks, but markets across Europe, Asia, and the Pacific broadly declined, with weak market breadth.
II. Market Outlook — U.S. and European bond turmoil unlikely to trigger crisis; maintain view that "global equities may shift from risk-off to risk-on in October"
The U.S. bond turmoil is approaching a turning point; the sharp rise in the 10-year U.S. Treasury yield in late September is unlikely to be sustained. The current 10-year U.S. Treasury yield has risen to around 5.3%, having already sufficiently priced in macro fundamentals this year. The main concern has shifted from the level of interest rates to the pace of their rise, transitioning from orderly to accelerated amid high volatility. A high-level consolidation and subsequent pullback in long-term U.S. Treasury yields in October is highly probable: weakening employment and widening credit spreads are increasing the likelihood of downward policy expectations, while transactional factors after quarter-end may gradually fade. Recent European bond market turbulence reflects a repricing of country-specific fiscal risks, which is unlikely to evolve into another European debt crisis, and may instead drive capital flows into U.S. Treasuries as a safe haven.
Fundamentals will be key to the fourth-quarter market. U.S. economic data have exceeded expectations to a growing extent, while China's manufacturing PMI has returned to expansion territory; earnings forecasts for the S&P 500 continue to be revised upward, with marginal improvement in earnings forecasts for Hong Kong stocks. We remain positive on U.S. equities in the fourth quarter, but after reaching new highs, their risk-reward ratio has declined; caution is warranted against short-term momentum-driven spikes. We maintain our view that Hong Kong stocks are likely to rebound in October; the correction has significantly exceeded fundamental justifications, and a rebound could be triggered merely by short covering. Short-selling and valuation indicators have reached extreme levels, suggesting October may see weakness first, followed by strength.
III. Investment Strategy: Defensive counterattack, adapting to the era of high interest rates and high volatility; seek opportunities in applications of super intelligence, and allocate to deep-value non-tech sectors
Catalysts for the rebound in U.S. and Chinese stock markets in the fourth quarter: easing of geopolitical risks; stabilization and pullback in long-term U.S. Treasury yields; continued diffusion of applications of super intelligence in the U.S.; and sustained policy stimulus in China's economy. Currently, the rise in long-term U.S. interest rates, deteriorating risk sentiment, and short-term earnings have been largely priced in. However, the market's pricing of natural growth rates for tech companies remains severely inadequate—this is the real opportunity in the AI season.
Theme One: Select global technology leaders and capture growth opportunities from the diffusion of applications. AI applications will experience a boom in prosperity, with industry value shifting toward reliable security and inference applications: cybersecurity, model governance, and private deployment will continue to gain importance; emphasize AI application rollouts in biomedicine, embodied intelligence, and other fields; AI ecosystem integration opens new monetization avenues for existing traffic, data, and customer relationships; on the hardware side, focus on opportunities in domestic computing power, semiconductor equipment, and advanced packaging.
Theme Two: Allocate to deep-value assets and prepare for enduring the era of high interest rates and high volatility in Hong Kong stocks. Focus on opportunities in nonferrous metals, power equipment and energy storage, chemicals, and digital assets; select Hong Kong internet and tech leaders, mainland high-dividend assets, Hong Kong local stocks, and Macau local stocks.
*Yi-Dong Zhang, Head of Research and Chief Economist, Haitong International
*Articles published on "ET Net", signed or unsigned, represent the authors' personal opinions and do not necessarily reflect ET Net's stance. ET Net assumes the role of providing a free speech platform.
