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External markets stabilize; tech stocks drag down the Hang Seng Index [Ping An Asset Management (Hong Kong) Market Weekly]

Major global markets performed well last week as easing US inflation data weakened expectations for interest rate hikes. However, the Hong Kong stock market was dragged down by underwhelming earnings from some heavyweight tech stocks, impacting overall market performance. The Hang Seng Index closed at 25,116.85 points on Friday, down 2.15% from the previous week.

In contrast, the A-share market remained relatively stable. The CSI 300 Index closed at 4,665.88 points on Friday, with a slight weekly decline of 0.61%; the CSI 500 Index closed at 7,990.33 points, up slightly by 0.13% for the week; and the CSI 1000 Index closed at 7,769.82 points, rising 1.18%.

The Nasdaq Composite Index closed at 30,046.14, continuing its rise with a 1.09% gain following last week's surge. The S&P 500 Index closed at 7,785.76 on Friday, up 0.36% compared to the previous week. The Hang Seng TECH Index closed at 4,707.62 points last Friday, down 3.10% for the week, while the Wind Tech Select HKD Net Return Index closed at 4,144.36 points, up 0.20% for the week.

In terms of dividend indices, the CSI Hong Kong Dividend Index closed at 3,867.50 points, unchanged for the week. The Solactive Global Pacific Select Stocks HKD Net Return Index closed at 2,094.86 points on Friday, down 0.77% for the week.

The money market remained stable, with the latest quoted rate for the U.S. Secured Overnight Financing Rate (SOFR) at 3.62%.

Key market events:

The US core CPI growth in July hit a five-year low, while the PPI slowed more than expected, further dampening expectations for interest rate hikes this year. The budget deficit for the same month reached a record high for the period. Fitch maintained the US AA+ rating with a stable outlook but warned that the fiscal deficit ratio would rise this year.

The People's Bank of China conducted overnight reverse repo operations mid-month for the first time, injecting CNY 349 billion to alleviate liquidity pressures during the tax season. The Reserve Bank of Australia kept rates on hold, but the Governor emphasized that the hiking cycle may not be over. The Japanese government reportedly supports the central bank in accelerating the pace of rate hikes.

Mediator Pakistan stated that the US and Iran were close to reaching an arrangement regarding the Strait of Hormuz, but the negotiation stalemate appears difficult to break as Trump resumed maximum pressure economic sanctions against Iran. Both Washington and Tehran claimed control over the strait and demanded unrealistic concessions from the other side. Iran's Supreme Leader remained out of public view, while factions disputed war objectives; senior military reshuffles indicated Tehran was preparing for a prolonged regional conflict. Iran-backed Houthi forces in Yemen attacked Saudi Aramco's refinery in Jizan on the Red Sea coast twice within a week.

Ahead of the planned September summit between the two heads of state, the US will impose tariffs of up to 100% on certain drones and their components. The White House is also preparing to crack down on shadow transshipment networks aimed at evading tariffs. Beijing announced high anti-dumping security deposits on US pecan imports. Washington criticized China for failing to provide adequate advance notice before its intercontinental ballistic missile test in the Pacific last month. The US and Japan also plan to cooperate on mining the world's deepest seabed minerals to break China's stranglehold on rare earths.

For the week, the Hang Seng Index fell 2.15%. By sector, Information Technology contributed most positively to the index, while Communication Services dragged it down the most. Southbound capital recorded a net inflow of HKD 89 million this week.

Key economic data:

On Friday, central bank data showed that at the end of July, the outstanding balance of loans in local and foreign currencies stood at CNY 286.07 trillion, a 5% year-on-year increase. The outstanding RMB loan balance was CNY 282.29 trillion, up 5.1% year-on-year. RMB loans increased by CNY 10.38 trillion in the first seven months.

On Thursday, initial jobless claims in the US totaled 209,000 last week, compared with forecasts of 202,000 and the previous figure of 199,000.

On Wednesday, US real average hourly earnings in July fell 0.2% year-on-year.

On Wednesday, the US unadjusted core CPI rose 2.5% year-on-year in July, in line with the forecast of 2.50% and down from the previous 2.60%. Month-on-month, it rose 0.2%, matching the forecast of 0.20% and up from the previous 0.00%.

On Tuesday, the annualized rate of US existing home sales in July fell to 4.06 million units, slightly above the expected 4.05 million.

On Tuesday, ADP data showed that US private-sector employment increased by an average of 8,250 jobs per week over the four weeks ending July 25.

On Tuesday, the US NFIB Small Business Optimism Index for July stood at 99.8, up from the previous reading of 97.4.

On Monday, data released by the National Bureau of Statistics showed that in July, the Consumer Price Index (CPI) fell 0.1% month-on-month and rose 0.5% year-on-year, with the year-on-year growth rate narrowing by 0.5 percentage points from the previous month. The Producer Price Index (PPI) for industrial producers declined 0.7% month-on-month but rose 3.5% year-on-year, with the year-on-year growth rate narrowing by 0.6 percentage points from the previous month. Driven by artificial intelligence, the price increase for ex-factory electronic equipment expanded in July, echoing rising consumer electronics prices at the terminal end, highlighting improved price transmission in certain sectors.

Last Friday, US average hourly earnings in July rose 3.2% year-on-year, missing the expected 3.5% gain; month-on-month, they increased by 0.1%, below the expected 0.3% rise.

Last Friday, data from the US Bureau of Labor Statistics showed that nonfarm payrolls for May were revised down from 129,000 to 63,000, and June's figure was revised down from 57,000 to 20,000. Following the revisions, the combined job gains for May and June were 103,000 lower than previously reported. Additionally, S&P Global released data on August 3 showing the US Manufacturing Purchasing Managers' Index (PMI) for July at 53.9.

Key market news:

On Friday, four government departments issued a policy allowing integrated circuit and industrial master machine enterprises to recognize income from non-monetary asset exchanges occurring between 2026 and 2028 into taxable income in installments over a period not exceeding five years for corporate income tax purposes.

On Friday, the regulated Hong Kong dollar stablecoin HKDAP advanced its first phase of institutional application, with HashKey serving as the primary authorized distributor to provide distribution, trading, and other services, while opening access channels to eligible institutions.

On Friday, capital flow data showed significant net inflows into Chinese equity funds over the past month, accompanied by simultaneous expansion in the scale of overseas China-focused ETFs, indicating that foreign institutional investors are increasingly bullish on the allocation value of Chinese equities.

On Friday, Trump signed a national security memorandum requiring new US aircraft carriers to abandon electromagnetic catapult systems in favor of steam catapults, a move that could entail significant additional costs and adjustments to defense procurement.

On Friday, Trump signed a national security presidential memorandum directing the Department of Defense to revitalize the U.S. shipbuilding industry and restore its production capacity and competitiveness.

On Friday, it was announced that the Ecological Environment Code of the People's Republic of China will come into effect on August 15, providing a legal framework and institutional safeguards for industries related to green, low-carbon development and the circular economy.

On Friday, reports indicated that governance against 'involution' has escalated from industry self-discipline to a combination of institutional rules, industry standards, and regulatory enforcement, entering a more institutionalized phase of governance.

On Thursday, Federal Reserve official Hammack warned that significant leveraged funds are being used to purchase U.S. Treasury bonds, while also highlighting potential bubbles in private credit and AI, signaling risks to financial stability.

On Thursday, the central bank announced it would conduct CNY 1 trillion in six-month outright reverse repurchase operations to maintain ample liquidity, signaling medium-term liquidity injection.

On Thursday, the U.S. Federal Communications Commission (FCC) added foreign-made power inverters and advanced robotics equipment to its restricted list, meaning new models will not be certified for entry into the U.S. market.

On Wednesday, sources reported that Trump is considering pushing for a reduction in capital gains tax and granting tax-exempt status on certain home sales, potentially as a policy commitment ahead of the midterm elections.

On Tuesday, the central bank issued the '15th Five-Year' reform and development plan along with supporting action plans, clarifying reform deployments such as accelerating the improvement of the central banking system.

On Monday, Beijing released and implemented a notice on optimizing real estate policies, covering adjustments to purchase restrictions, property gifting, and housing provident fund rules to stabilize the real estate market.

Weekly market brief:

Although there has been no direct military conflict between the U.S. and Iran, navigation conditions in the Strait of Hormuz remain uncertain, posing negative implications for the global economy. Meanwhile, structural changes triggered by artificial intelligence and the resulting surge in demand have attracted investor attention; however, concerns over returns on substantial capital expenditures have led to significant volatility in related stocks.

The recently released July Consumer Price Index (CPI) and Producer Price Index (PPI) showed a slowdown in month-on-month growth, indicating that demand remains weak. Meanwhile, earlier data on imports and exports maintained strong growth. We expect the overall macroeconomic landscape to continue featuring strong external demand but weaker internal demand. Recent key national meetings did not introduce significant incremental policies to stimulate economic growth in the second half of the year, leading to generally conservative corporate outlooks. Property sales have not shown significant improvement, and developers continue to face cash flow pressures. Overseas, recent US data also indicates persistently high inflation, complicating the Federal Reserve's interest rate decisions. The US restriction on semiconductor equipment supplies to China underscores the continued intense competition between the two countries.

The current stock market is witnessing a major tug-of-war between the AI narrative and traditional sectors. The rapid development of artificial intelligence has led investors to anticipate a surge in productivity and demand, but cost-effectiveness remains unproven, resulting in significant volatility in related stocks recently. On the other hand, traditional sectors have rebounded somewhat since late June, and we believe sector rotation will remain frequent going forward. Tensions in the Middle East have pushed up energy and supply chain costs, further forcing major central banks to maintain an extremely cautious monetary policy stance as they balance 'fighting inflation' with 'stabilizing growth'.

Domestically, the macroeconomy has demonstrated resilient, moderate recovery, with new-quality productive forces—led by high-end manufacturing and the digital economy—emerging as a new growth engine. However, recent high-frequency data indicate that the economy still faces structural challenges characterized by strong supply but weak demand. The deep adjustment in the property market and the lag in restoring confidence among microeconomic agents remain key policy hurdles requiring focused attention. Policymakers have recently emphasized maintaining proactive countercyclical support, ensuring government investment translates into physical output as early as possible to provide a policy floor for stable economic performance throughout the year.

The Hong Kong stock market continues to record inflows of Southbound capital this year, fully reflecting mainland investors' recognition of the long-term allocation value of core assets in Hong Kong equities.

Looking ahead to the coming week, China will release data for July on new and secondary home price indices, fixed asset investment, retail sales, industrial production, unemployment rates, and property sales. The US will release data on import and export prices, housing starts, building permits, industrial production, capacity utilization, leading indicators, and PMI. Additionally, the Federal Reserve will publish the minutes of its latest monetary policy meeting. We are also continuously assessing shipping conditions in the Strait of Hormuz and the Bab el-Mandeb Strait following the escalation of US-Iran tensions. Furthermore, investors should monitor changes in Sino-US relations and the potential impact of related policies from both countries on global supply chains and the technology sector of Hong Kong stocks. (Source: Bloomberg, Ping An Asset Management (Hong Kong) Co., Ltd.)

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