[ET Net News Agency, 04 July 2025] In June, US nonfarm payrolls increased by 147,000,
significantly exceeding the market expectation of 110,000, reflecting a certain degree of
resilience in the labour market. The unemployment rate for the same period fell to 4.1
percent, also better than the expected 4.3 percent and an improvement from last month's
4.2 percent. As a result of the data, the market now sees less than a 5 percent chance of
a Federal Reserve rate cut in July, and the probability of a cut in September has also
dropped to 67 percent. The HSI is under selling pressure, with some investors cashing out,
amplifying the pullback in Hong Kong stocks. At midday, the HSI stood at 23,921, down 148
points or 0.6 percent, with main board turnover close to HKD 157.7 billion. The Hang Seng
China Enterprises Index was at 8,611, down 36 points or 0.4 percent. The Hang Seng Tech
Index was at 5,209, down 24 points or 0.5 percent.

"Lee Wai Kit: HSI to swing within an 800-point range around 24,000 in the short term"

The Hong Kong dollar remains weak, once again triggering the weak-side convertibility
undertaking at 7.85 to 1 US dollar. The HKMA intervened twice during the day, buying HKD
12.756 billion and selling US dollars during the New York session. Together with HKD
16.878 billion bought earlier, the HKMA absorbed a total of HKD 29.634 billion in sell
orders in one day. The aggregate balance of the Hong Kong banking system will fall to HKD
114.541 billion next Monday. Lee Wai Kit, a director of the Brokerage Department of TF
International Securities, told ET Net News Agency that the weak Hong Kong dollar is due to
the net interest rate differential between the Hong Kong dollar and the US dollar, which
is a structural issue. He expects this situation to persist while US rates are high and
Hong Kong rates are low. He believes the recent weakness of the Hong Kong dollar is not
directly related to the HSI's correction phase, so it is not a reason to be extremely
bearish on Hong Kong stocks. However, it does affect investor sentiment towards Hong Kong
dollar assets, as there are concerns about capital outflows, which in turn affects the
performance of Hong Kong stocks.
Regarding the HSI's outlook, Lee Wai Kit said that in the short term, the HSI should be
able to reclaim the 24,000 level and will likely fluctuate within an 800-point range
around 24,000, with support at 23,200 to 23,400.

"Alibaba issues bonds for structural adjustment, proceeds are expected to be invested in
cloud business"

Alibaba (09988) announced it has completed the pricing of zero-coupon exchangeable bonds
due in 2032, with a total principal amount of HKD 12.023 billion. The bonds are
exchangeable into shares of its subsidiary Ali Health (00241), in which Alibaba holds
about 64 percent. The initial exchange ratio is about 160,500 Ali Health shares for every
HKD 1 million in bonds, implying an initial exchange price of 6.23 per share, a 48 percent
premium to the hedged placement price of 4.21. This effectively means Alibaba may reduce
its Ali Health stake by up to 12 percent.
Lee Wai Kit believes this is not negative; Alibaba is able to raise funds at zero
interest, and the exchange price for Ali Health is more than 40 percent above the current
price. The maturity in 2032 is not considered distant. However, the market is concerned
that Alibaba may further reduce its stake in Ali Health, weakening synergy between Ali
Health and Alibaba.
On the link between Ali Health and Alibaba, Lee Wai Kit further pointed out that even
with concerns over Alibaba gradually reducing its holding, Alibaba will still own a
significant stake in Ali Health. In future, Alibaba's AI will also help promote Ali
Health's product sales, so the outlook is not too poor. The only pain point for Ali Health
is a relatively high price-to-earnings ratio of about 40 times. For investors without a
position, he suggests monitoring the 250-day bull-bear line (HKD 4) to see if it can hold.
As for Alibaba itself, Lee Wai Kit said the company has abundant cash flow. This bond
issue is part of a structural adjustment, and Alibaba may invest the proceeds in cloud
computing or international commerce. This is positive for future development. In addition,
Alibaba's ability to issue zero-coupon bonds reflects its capital management strength.
Investors can consider buying between HKD 97 and 100, with a medium to long-term target of
HKD 130.

"Chip stocks are under short-term pressure, but are still supported by policy in the long
run"

Another blue chip, SMIC (00981), also saw selling. According to HKEX data, the National
Integrated Circuit Industry Investment Fund, known as the 'Big Fund', reduced its holding
in SMIC by 3 million H-shares on 2 Jul, at an average price of 43.8988 per share,
involving HKD 132 million. Its holding fell from 5.01 percent to 4.97 percent.
In addition, US President Trump has cancelled the export licensing requirement for chip
design software sold to China. The US Department of Commerce has informed the three global
leading chip design software suppliers, Synopsys Inc, Cadence Design Systems Inc, and
Siemens, that they no longer need US government approval to conduct business in China.
Siemens said it has resumed full provision of software and technology to clients in China,
while Synopsys and Cadence stated they are restoring related services.
With both these developments, Lee Wai Kit said that the reduction by the Big Fund and
the US relaxing restrictions have both weakened the chip self-sufficiency theme, so chip
stocks will be under short-term pressure and likely trade sideways. However, in the long
term, the industry is still supported by policy, and the pace of domestic chip development
in Mainland China will not slow. Chip self-sufficiency remains a major trend. Investors
may consider buying SMIC between HKD 38 and 40.