Fed Sends Hawkish Signal; Hong Kong Stocks Weaken Amid Capital Outflows [Ping An Asset Management (Hong Kong) Weekly Market Recap]

Last week, newly appointed Fed Chair Walsh made his policy debut with a hawkish tone, eliminating market expectations for rate cuts this year and leaving Hong Kong equities in continued weakness. The Hang Seng Index closed Friday at 23,924.81, down 3.21% from the previous week. Mainland A-shares, led by tech stocks, edged higher amid volatility: the CSI 300 closed Friday at 4,941.60, up 3.44% for the week; the CSI 500 ended at 8,673.09, rising 6.99%; and the CSI 1000 closed at 8,771.02, gaining 6.93%.

US-Iran tensions continued to ease, with the Nasdaq closing Friday at 30,406.19, up 2.60% for the week. The S&P 500 closed Friday at 7,500.58, rising 0.93% over the week. The Hang Seng Tech Index closed Friday at 4,604.35, down 2.14% for the week, while the Wind Technology Select HKD Net Total Return Index ended the week at 4,075.06, slipping slightly by 0.07%.

High-dividend stocks were pressured by multiple factors including policy signals and oil prices. Last week, the CSI Hong Kong Dividend Index closed at 3,770.91, down 6.21% for the week, and the Solactive Global Pacific ex Japan Equity Select HKD Net Total Return Index closed Friday at 2,015.86, down 1.60% over the week.

Money market funds remained stable, with the latest quote for the U.S. Secured Overnight Financing Rate (SOFR) at 3.63%.

Key market events:

The Federal Reserve concluded its first policy meeting under new Chair Waller, with the FOMC announcing it would hold rates steady. Waller did not release quarterly economic projections or the dot plot, prompting markets to closely scrutinize the wording of the policy statement for clues on his monetarist policy direction. Meanwhile, the European Central Bank’s decision to raise its three key interest rates by 25 basis points has officially taken effect, lifting the main refinancing rate to 2.40% in a strong response to eurozone inflation, which exceeded 3% in May. The Bank of Japan is also intensively assessing the timing of its next rate hike.

Following a new round of intense conflict, the Middle East situation has shown signs of easing. After U.S.–Iran negotiations advanced to the highest leadership level, President Trump stated he had canceled planned follow-up airstrikes. Over the weekend, both sides signed a preliminary agreement in Europe to fully reopen the Strait of Hormuz, driving international crude oil prices down to around $80 per barrel. However, Iran’s Foreign Ministry subsequently downplayed the imminence of the deal, clarifying that although most of the negotiating text has been finalized, Tehran has not yet reached a final conclusion on the agreement, with core issues such as its nuclear program still requiring further talks. Global trade and tariff frameworks continue to undergo accelerated restructuring.

The Trump administration is accelerating efforts to implement Reciprocal Trade Agreements with nine trading partners, including Taiwan, Indonesia, and Malaysia, using seven legal mechanisms—including forced labor exclusions, aligned export controls, and investment security reviews—to dynamically adjust tariffs and build a trade network aimed at reducing supply chain dependence on specific third countries. Meanwhile, the OECD has warned that subsidy levels in certain economies could distort global markets, and reports indicate the European Union is urgently preparing defensive measures against potential full-scale trade conflicts.

China’s latest economic data and regulatory compliance developments have emerged. According to the National Bureau of Statistics, mainland China’s May CPI rose 1.2% year-on-year, in line with market expectations, while automobile exports posted significant growth. Following the State Council’s release of China’s first Regulation on Overseas Investment—which establishes an overseas investment security review system effective July 1 and formally brings individuals under the regulatory framework—Beijing has further intensified oversight of private equity fundraising and cross-border capital flows. Some banks have already implemented stricter reviews on mainland residents’ procedures for opening overseas accounts and making investments, in alignment with the new compliance requirements. For the week, the Hang Seng Index fell 3.21%. Southbound capital recorded a net outflow of HK$4.4 billion this week.

Key economic data:

On Tuesday, U.S. housing starts in May totaled 1.177 million units, annualized, below the expected 1.43 million; the prior month’s figure was revised down to 1.392 million from 1.465 million.

On Tuesday, the U.S. import price index rose 1.9% month-over-month in May, exceeding the forecast of 1%; the prior month’s reading was revised upward to 2% from 1.90%.

On Tuesday, U.S. building permits totaled 1.413 million in May, slightly below the expected 1.42 million and down from the previous month’s 1.423 million.

On Tuesday, U.S. ADP employment increased by 25,500 for the week ending May 30, down from the prior week’s gain of 29,000.

On Tuesday, according to the National Bureau of Statistics, China’s national services production index rose 4.4% year-on-year in May, accelerating by 0.1 percentage point from April.

On Tuesday, data from the National Bureau of Statistics showed that online retail sales of goods and services nationwide totaled RMB 8.3177 trillion in January–May, up 5.9% year-on-year.

On Tuesday, data from the National Bureau of Statistics showed that in May, power generation by large-scale industrial enterprises reached 784.3 billion kilowatt-hours, up 4.2% year-on-year, accelerating by 1.6 percentage points compared to April.

On Tuesday, data from the National Bureau of Statistics showed that real estate development investment nationwide totaled RMB 3.0356 trillion in January–May, down 16.2% year-on-year.

On Tuesday, data from the National Bureau of Statistics showed that fixed asset investment (excluding rural households) nationwide totaled RMB 17.8512 trillion in January–May, down 4.1% year-on-year.

On Monday, Bank of America reported a credit card charge-off rate of 2.33% and a delinquency rate of 1.30% for May.

On Monday, the NAHB Homebuilders Index for June fell to 35, below the forecast of 37.

On Monday, U.S. industrial production rose 0.1% month-over-month in May, below the forecast of 0.3%.

On Monday, the New York Fed Manufacturing Index for June came in at 5.7, below the expectation of 14 and the prior reading of 19.6.

On Monday, the preliminary one-year inflation expectation for June stood at 4.6%, below the forecast of 4.9% and the prior reading of 4.80%.

Key market news:

On Wednesday, the State Administration for Market Regulation released the 'Ten Guidelines on Regulating Subsidy Practices by Food Delivery Platforms (Draft for Public Comment)' and opened it for public consultation, aiming to standardize subsidy practices by food delivery platforms.

On Wednesday, the Shanghai and Shenzhen stock exchanges issued guidelines on actively managed ETF operations, standardizing definitions and naming conventions for active ETFs, requirements for fund managers and investment research operations, and strengthening information disclosure and risk control.

On Wednesday, six government departments including the People's Bank of China jointly issued with the Shanghai municipal government the 'Action Plan for Developing Offshore Finance in Shanghai as an International Financial Center,' proposing support for Pudong to pilot offshore financial activities.

On Wednesday, the People's Bank of China launched the Foreign and International Monetary Authorities (FIMA) RMB Repo Facility, providing RMB liquidity to eligible foreign central bank-type institutions.

On Wednesday, the People's Bank of China optimized its temporary overnight repo and reverse repo operations in the open market, adjusting operational timing and interest rate rules and clarifying activation conditions.

On Wednesday, Pan Gongsheng stated that six banks, including Industrial and Commercial Bank of China, will be authorized to conduct offshore RMB foreign exchange trading pilots via the China Foreign Exchange Trade System platform in the Shanghai Free Trade Zone.

On Wednesday, Pan Gongsheng stated that authorities will study establishing a macroprudential tool to provide liquidity support to non-bank financial institutions under specific stress scenarios, offering emergency liquidity when systemic market stress occurs.

On Wednesday, Ding Xiangqun, head of the National Financial Regulatory Administration, said efforts will accelerate to revise and enact the Banking Supervision Law and Insurance Law to improve financial regulatory frameworks.

Last Saturday, six departments including the Cyberspace Administration of China, the People's Bank of China, the National Financial Regulatory Administration, and the China Securities Regulatory Commission jointly issued the 'Guidelines on Data Classification and Grading for Financial Information Services,' establishing a clear framework for classifying and grading financial information service data.

Last Saturday, the Federal Reserve announced it would continue purchasing approximately USD 10 billion in short-term U.S. Treasury bills during this operational cycle to maintain liquidity arrangements.

Weekly Market Brief:

Artificial intelligence-related stocks have recently been enthusiastically pursued by the market. Despite robust demand for computing power, concerns persist over the return on investment (ROI) from massive capital expenditures, leading to pronounced structural divergence within the tech sector amid volatility.

Geopolitical tensions in the Middle East have eased following the signing of a memorandum of understanding between the U.S. and Iran, raising hopes for the resumption of shipping through the Strait of Hormuz. However, recent global inflationary pressures have alarmed the Federal Reserve, and market concerns over a 'higher for longer' interest rate environment have dampened risk appetite.

On the macro front, domestic demand in China remains weak. Although the property market has shown marginal improvement under a package of supportive policies, the sector is still undergoing deep adjustment and bottoming out. Policy guidance continues to emphasize 'stability with progress' and high-quality development. Moreover, the global trade environment remains complex and volatile, fueling strong short-term risk-aversion among investors. Domestically, fiscal and monetary policies are working in concert, with ultra-long special treasury bonds and government investment funds accelerating their deployment to stabilize growth through new quality productive forces and major infrastructure projects. Despite lingering market concerns about the sustainability of domestic demand recovery and corporate earnings, stronger policy support and visible economic resilience provide a solid floor for the market.

In the U.S., resurgent inflation has complicated the Fed’s policy path, and repeated market recalibrations of rate-cut expectations have led to frequent style rotations. Investors should remain highly vigilant toward geopolitical shocks, global supply chain disruptions, and potential undercurrents in U.S.-China relations. In summary, market breadth is currently very narrow in the short term, as capital flows into artificial intelligence-related companies at the expense of liquidity in other sectors. Over the medium term, we believe domestic and international investors will refocus on fundamentals—both sectoral and company-specific—providing valuation support for high-quality companies with sound fundamentals. (Source: Bloomberg, Ping An Asset Management (Hong Kong) Company Limited)

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