Weekly Market Outlook – Weekly Market Strategy Report

Market Overview: Pressured from Both Domestic and External Factors, Sector Performance Highly Divergent

Over the past week, the Hong Kong stock market has shown a choppy trading pattern, fluctuating with repeated pullbacks, and sector performance has been sharply polarized:

Index performance: Hang Seng Index down 1.65%, HSI China Enterprises Index down 1.46%, Hang Seng Tech Index up slightly 0.30%。

Industry sector: Industrials (0.00%), Information Technology (-0.46%), Consumer Staples (-0.58%) showed relatively 'resilient' performance; in contrast, consumer discretionary (-3.32%), materials (-2.85%) and real estate & construction (-2.58%) declined the most.

Fund Flows: 'Southbound capital' (southbound funds) recorded a total net buying of HK$808 million HKD.

Hong Kong stocks were generally weak, pressured by both domestic and external factors: persistently high US inflation cooled expectations for rate cuts; although China’s industrial data improved, consumption and the property market remained sluggish, and regulators’ crackdown on illegal cross-border stock trading further dampened market sentiment.

External factors: Sticky US inflation keeps the Federal Reserve cautious

Elevated inflation data: The U.S. April PCE (Personal Consumption Expenditures) price index rose year-over-year by 3.8%, marking the fastest pace since May 2023. Gasoline prices surged sharply by 5.5%, and housing inflation remained elevated, reflecting persistent inflationary stickiness.

Consumption momentum in doubt: Although personal spending rose by 0.5% in April, personal income was essentially flat, indicating that consumption growth relied primarily on savings rather than income gains, casting doubt on the sustainability of consumer spending momentum.

Rate hike concerns resurface: Several Fed officials remain cautious on inflation, with some even suggesting that AI-driven productivity gains could push inflation higher, forcing the central bank to raise rates.

Market expectations: Markets currently price in a 99% chance that the Fed will hold rates steady at its June meeting, but expectations for at least one 25-basis-point rate hike by year-end have risen to nearly 60%. Anticipated tightening of overseas liquidity will continue to weigh on HK equity valuations.

Domestic factors: Industrial rebound, but uneven recovery persists

The pace of China's economic recovery remains uneven, exhibiting a pattern of 'strong industrial output but weak consumption':

Industrial profits rebound: Industrial enterprise profits rose year-over-year by 18.2% from January to April, mainly driven by energy, raw materials, and high-tech manufacturing sectors (e.g., computer equipment, non-ferrous metals).

Weak domestic demand and property marketOn the contrary, industries closely tied to real estate and end-consumer spending (e.g., tobacco and alcohol, apparel, furniture) continue to see declining profits, reflecting ongoing drag from insufficient domestic demand and weakness in the property sector. The market expects further policy measures from domestic authorities to support the market, but uncertainty remains regarding the scale and timing of such policies.

Regulatory Crackdown: Strict enforcement against illegal cross-border stock trading raises capital flight concerns

On May 22, eight mainland Chinese government departments jointly launched a crackdown on illegal cross-border securities activities and initiated investigations and penalties against several major cross-border online brokerages.

Short-term impactThe market worries this could trigger capital outflows from funds that invested in Hong Kong stocks via unofficial channels, putting downward pressure on overall market liquidity and leading to pessimistic short-term investor sentiment.

Long-term impactIn the long run, this move will help clean up the market, channel funds through legitimate pathways, and better protect investors.

Market outlook and investment strategy

Market forecastHong Kong stocks face upside constraints from external interest rates and the pace of China's economic recovery, but further downside room is also limited. A near-term range-bound trend is expected.range-bound marketas the market gradually digests negative news, the Hang Seng Index may form a bottom through consolidation. Structural opportunities will emerge in the broader market, supported by rising expectations for national policy support and accelerating AI commercialization.

Investment Strategy：

Resources and Energy StocksBenefiting from the ongoing recovery in China's industrial profits.

High-Quality Growth/Technology StocksFocus on sectors whose earnings forecasts have been sufficiently downgraded and now offer renewed valuation appeal.

Key Macro Events to Watch Next Week

Risk Warning:

This document is for informational purposes only and does not constitute an offer or solicitation to buy or sell any investment products, nor does it provide any advice or recommendations. The information contained herein does not consider your specific investment objectives, financial situation, or personal needs, and should not be relied upon as a substitute for professional advice. You should seek independent professional advice before making any investment decisions.

Investments involve risks, including the possible loss of principal. Past performance does not indicate future fund returns. The value of fund units may go up or down, and future returns are not guaranteed. Investors should read the fund’s offering documents, including its prospectus and risk factors, prior to investing. You may access these documents at the following websitehttps://www.fullgoal.com.hk/en(The content of this website has not been reviewed by the SFC) to obtain the fund's Hong Kong information.

This material is issued by Fullgoal Asset Management (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. Some information in this document is derived from third-party sources believed to be reliable, but we make no representation or warranty regarding its accuracy, completeness, or timeliness.

The above information is for reference only. If you intend to purchase relevant fund products, please pay attention to investor suitability management regulations, complete a risk assessment in advance, and purchase fund products with a risk rating that matches your own risk tolerance.

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