US Treasury and geopolitical risks weigh on market; tech stocks drag down equity correction [Ping An Asset Management (Hong Kong) Market Weekly]

Last week, rising geopolitical risks pushed oil prices higher, while surging US Treasury yields and expectations of a year-end interest rate hike weighed collectively on the stock market. The Hang Seng Index closed at 25,962.73 points on Friday, falling 1.63% for the week. The CSI 300 Index ended at 4,859.59 points, declining 0.25% for the week; the CSI 500 Index closed at 8,536.34 points, down 1.82%, and the CSI 1000 Index finished at 8,682.65, dropping 0.67%.

The US stock market saw a pullback after six consecutive weeks of strong gains. Nasdaq closed at 29,125.20 on Friday, falling 0.38% for the week. The S&P 500 Index ended at 7,408.5, still maintaining a slight increase of 0.13% for the week. The Hang Seng Tech Index experienced a larger decline last week, closing at 4,941.14 points on Friday, with a weekly drop of 3.17%. However, the Wind Tech Select HKD Net Return Index remained stable, closing at 4,279.56 points, still showing a gain of 0.58% for the week.

High-dividend theme market reference indices performed relatively steadily. The CSI Hong Kong Dividend Index closed at 4,084.58 points last week, with a slight decline of 0.10% for the week. The Solactive Global Pacific Equity Select HKD Net Return Index closed at 2,111.69 points, falling 0.76% for the week.

The money market fund performance remained stable, with the latest Secured Overnight Financing Rate (SOFR) in the US quoted at 3.56%.

Key market events:

This week, China and the US first held trade talks in South Korea, followed by a highly anticipated summit in Beijing, but few specific agreements were reached. China has been asked to visit the US in September. US officials stated that China would purchase a large amount of American agricultural products, and both sides are seeking to reduce some tariffs, starting with $30 billion worth of non-critical goods. They also plan to discuss establishing an investment committee. The two sides did not discuss chip export controls, and China’s statement did not mention Iran.

The deadlock in the Strait of Hormuz continues as Trump has rejected Iran's latest peace proposal, stating that the ceasefire is hanging by a thread. The US claims that since it imposed a blockade on the strait, 72 merchant ships have been rerouted. The US also sanctioned more entities and individuals accused of helping Iran sell oil to China, including four Hong Kong companies. Satellite images show that oil shipments from Iran’s main export terminals have experienced their first prolonged halt since geopolitical tensions began. The International Energy Agency reported that global oil inventories are declining at a record pace.

Iran tensions continue to push up prices globally, with China’s PPI posting the largest increase in nearly four years and CPI unexpectedly rising as well, though weak domestic demand may still constrain reflation. China’s April retail car sales plunged, and credit growth significantly slowed.

US CPI and PPI both accelerated, combined with growing employment concerns, making hopes for a Federal Reserve rate cut increasingly unlikely. The presidents of the Boston and New York Federal Reserve Banks both support holding steady. The Senate approved Kevin Warsh to chair the Federal Reserve, testing the central bank’s independence. The Bank of England’s chief economist favors a rate hike, while the Bank of Japan hinted at a possible rate increase next month.

For the week, the Hang Seng Index fell by 1.63%. In terms of sectors, the real estate sector contributed most positively to the index, while the discretionary consumption sector weighed the most. Southbound capital flows amounted to approximately HKD 9.3 billion net inflow this week.

Key economic data:

On Friday, Freddie Mac data showed that the US 30-year mortgage rate last week was 6.36%, compared to 6.37% previously.

On Thursday, US business inventories for March increased by 0.9% month-over-month, in line with expectations of a 0.9% rise.

On Thursday, US export prices for April rose 3.3% month-over-month, surpassing expectations of a 1.2% increase; year-over-year, export prices rose 8.8%, exceeding forecasts of a 7.0% gain.

On Thursday, US oil import prices for April surged 19.0% month-over-month.

On Thursday, US retail sales for April increased by 0.5% month-over-month, in line with expectations of 0.5%, compared to a previous value of 1.7%.

On Thursday, the number of initial jobless claims in the US for the previous week was 211,000, higher than the forecast of 205,000, with the previous value at 200,000.

On Thursday, US import prices for April rose 1.9% month-over-month, surpassing the expected 1%, with the prior reading at 0.8%.

On Wednesday, the US Producer Price Index (PPI) for final demand excluding food, energy, and trade in April increased by 4.4% year-over-year.

On Wednesday, the US MBA Mortgage Applications Index rose 1.7% last week.

On Tuesday, real average weekly earnings in the US fell 0.2% year-over-year in April, while real average weekly income declined 0.2% month-over-month. Real average hourly earnings dropped 0.3% year-over-year and fell 0.5% month-over-month.

On Tuesday, ADP data showed that the average weekly new private sector jobs added in the four weeks ending April 25 were 33,000.

On Tuesday, the NFIB Small Business Optimism Index for the US in April came in at 95.9, slightly below expectations of 96.1, with the previous reading at 95.8.

On Monday, data from the National Bureau of Statistics showed that in April 2026, China's producer price index (PPI) for industrial producers rose 2.8% year-over-year and 1.7% month-over-month. The purchase price index for industrial producers increased by 3.5% year-over-year and 2.1% month-over-month.

Key market news:

On Friday, the China Securities Regulatory Commission released the 'Measures for the Supervision and Administration of Derivatives Trading (Trial)', which incorporates over-the-counter derivatives such as swaps, forwards, and non-standardized options into the regulatory framework to promote the implementation of the Futures and Derivatives Law.

On Friday, the Measures for the Implementation of Protection of Pharmaceutical Test Data were issued and took effect immediately, complementing the newly revised Regulations for the Implementation of the Drug Administration Law to strengthen lifecycle regulation centered on marketing authorization holders.

On Friday, the leaders of China and the US met at Zhongnanhai and reached important consensus on building a new framework for 'constructive strategic stability relations' between China and the US, as well as maintaining stable trade relations.

On Friday, the Ministry of Foreign Affairs stated that the Chinese and U.S. heads of state agreed to adopt a 'constructive strategic stability relationship' as the new orientation for bilateral relations and concurred on enhancing communication and coordination regarding international and regional issues.

On Friday, Federal Reserve Governor Barr publicly opposed targeting balance sheet reduction as a policy objective, warning it could threaten financial stability—a stance at odds with incoming Chair Waller’s position.

On Friday, regulators announced plans to launch a three-year nationwide campaign starting in 2026 to prevent and combat illegal financial activities, with multiple regions accelerating efforts to build a multidimensional risk prevention and control system.

On Friday, Federal Reserve Governor Stephen Miran submitted his resignation letter to the President, effective on or shortly before the day Waller is sworn in as Chair.

On Thursday, the People's Bank of China announced it would conduct a 300-billion-yuan outright reverse repo operation with a six-month maturity to ensure ample liquidity.

On Thursday, the Ministry of Commerce said China and the United States held economic and trade consultations in South Korea, engaging in constructive discussions to address each other's concerns and expand cooperation, with follow-up efforts aimed at extending the cooperation agenda and narrowing the list of outstanding issues.

On Thursday, the leaders of China and the US held talks at the Great Hall of the People in Beijing, proposing to reframe the relationship between the two countries as a 'constructive strategic stability relationship.'

On Thursday, the Federal Reserve announced a slowdown in its reserve management purchasing program, buying approximately $10 billion in Treasury bills this cycle and scheduling reinvestment purchases.

On Tuesday, the Cyberspace Administration required short video platforms to promote content labeling and enforce mandatory tag selection. Platforms and accounts that fail to implement the labeling requirements will be severely punished and exposed according to the law.

Weekly Market Brief:

As US President Trump visits China, high-level interactions between the US and China have led to a easing of relations. However, competition and cooperation in the technology sector and geopolitics continue to be a focal point for the market. Meanwhile, tensions between the US and Iran continue to block the Strait of Hormuz, causing disruptions to maritime navigation and an unresolved energy crisis, posing significant impacts on the global economy.

On the other hand, structural changes triggered by artificial intelligence and the enormous infrastructure demands have drawn investors' attention. April's export data released this week exceeded expectations significantly, with imports also showing double-digit growth. Both month-over-month and year-over-year price indices are on the rise. However, consumption data during the May Day holiday appeared relatively muted. Overall, the macro environment still shows strong external demand but weak internal demand, with many uncertainties remaining. Our country is maintaining moderate easing measures to sustain economic growth. Alongside recent subsidies being implemented and intensified real estate policies, these efforts are expected to provide robust support to the real economy. Nevertheless, corporate outlooks remain generally conservative. Real estate sales have yet to show noticeable improvement, and developers still face cash flow pressures.

The government has announced several policies to boost market confidence and encourage long-term capital investment in the capital markets. The market currently still hopes for further policy support in the short term. Additionally, significant breakthroughs by domestic companies in artificial intelligence, technology, and pharmaceuticals have once made Hong Kong's growth sectors perform strongly. However, there are no clear signs of recovery in the real economy. It will take time for government policies to be formulated, implemented, and to show results. We believe that the macro economy will face considerable pressure in the short term. The government has prioritized reducing real estate inventory by lifting purchase restrictions and lowering mortgage rates for existing loans to stimulate consumption. We believe these policies will have a positive impact on the economy. The macro environment still faces numerous challenges. Apart from the recently mentioned anti-internal competition measures, we are closely monitoring whether there will be further policy support measures. Companies still face operational pressures, and the road to recovery remains bumpy. The country needs to maintain a relatively loose monetary policy. Efforts are being intensified to drive the economy through various stabilization measures, including issuing special treasury bonds, moderately increasing deficits, and boosting sectors such as automobiles, real estate, infrastructure, and electronics consumption. Certain loan credit and credit enhancement measures taken for individual real estate companies help stabilize their cash flows and fundamentals to some extent but do not eliminate the risk of defaults by lower-quality private or even state-owned real estate enterprises.

Internationally, some recent US data also indicates economic fluctuations. The situation between the US and Iran has caused disruptions to navigation through the Strait of Hormuz, affecting commodities and financial markets. Restrictions on equipment supplies to Hua Hong Semiconductor highlight the continued intense competition between the two countries.

(Source: Bloomberg, Ping An Asset Management (Hong Kong) Co., Ltd.)

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