Global market volatility intensifies as Middle East tensions remain unsettled [Ping An Asset Management (Hong Kong) Weekly Market Recap]

Last week, global equities experienced heightened volatility amid the Federal Reserve’s hawkish signals, mixed investor sentiment toward tech stocks, and ongoing instability in the Middle East. The Hang Seng Index closed Friday at 22,671.86, down 5.24% from the previous week. Mainland Chinese equities failed to hold their gains: the CSI 300 Index ended Friday at 4,868.22, down 1.48% for the week; the CSI 500 Index closed at 8,703.57, posting a modest weekly gain of 0.35%; and the CSI 1000 Index settled at 8,601.41, declining 1.93% over the week.

U.S. equities also saw a notable pullback last week. The Nasdaq closed Friday at 29,118.24, down 4.24% for the week. The S&P 500 Index ended Friday at 7,354.02, marking a 1.95% weekly decline. The Hang Seng Tech Index closed Friday at 4,255.59, falling 7.57% over the week, while the Wind Technology Select HKD Net Total Return Index finished the week at 3,912.03, down 4.00%.

High-dividend stocks continued to decline under the combined pressure of policy signals and oil price movements. Last week, the CSI Hong Kong Dividend Index closed at 3,590.2041, down another 4.79% from the prior week. The Solactive Global Pacific Equity Select HKD Net Total Return Index ended Friday at 1,959.33, posting a weekly loss of 2.80%.

Money market funds remained stable, with the latest Secured Overnight Financing Rate (SOFR) quoted at 3.64%.

Key market events:

The first round of negotiations between the U.S. and Iran on a permanent peace agreement has concluded, with further talks scheduled to take place in Switzerland next week. Although both sides indicated progress, they remain at odds over key issues such as verification arrangements, asset unfreezing, and strait transit fees, highlighting unresolved core disagreements. Since the reopening of the Strait of Hormuz, commercial vessel traffic has increased, and crude oil exports from the Persian Gulf have recovered to 75% of pre-war levels—though the situation remains tense. A cargo ship was attacked near the Omani coast, prompting the International Maritime Organization to announce a suspension of its vessel evacuation plan for the Persian Gulf.

U.S. PCE inflation has risen to a more-than-three-year high, yet consumer spending growth has accelerated, indicating American consumers are weathering the shock from the Iran conflict. Treasury Secretary Bessent expressed confidence in Federal Reserve Chair沃什 and noted that Trump has granted沃什 room for independent decision-making. European Central Bank officials expect inflation to remain elevated for longer, while the Bank of Japan governor signaled readiness to raise interest rates further if appropriate. Wild swings in South Korea’s stock market have become commonplace, prompting investors to reassess the surge in leveraged ETFs.

The People’s Bank of China’s overnight reverse repo facility is set to officially launch, marking a further expansion of its open market operations toolkit. PBOC advisor Huang Yiping warned that China’s economic growth faces imbalances and stressed that policy focus should shift toward boosting household income and confidence. In response to external concerns that China’s export surge is disrupting the global economy, Premier Li Qiang downplayed the risks, emphasizing that China’s development delivers innovation dividends to the world.

UK Prime Minister Starmer has announced his departure timeline, with Labour MP Burnham potentially moving into Downing Street as early as next month; his team has already begun outlining its economic agenda. China has tightened export controls on dual-use strategic mineral items, restricting key mineral shipments to Japan. Bessent called for a reassessment of supply chain resilience, and the U.S. Army has opened military bases for the first time to host critical mineral processing facilities. The U.S. is also seeking to establish an AI partnership with the EU to build an alliance safeguarding semiconductor supply chains. For the week, the Hang Seng Index fell 5.24%. By sector, healthcare contributed the most positively to the index, while discretionary consumer goods weighed it down the most. Southbound capital recorded a net inflow of HK$8.9 billion this week.

Key economic data:

On Thursday, U.S. durable goods orders for May posted a monthly decline of 4.5%, the largest drop since June 2025.

On Thursday, the final reading for Q1 U.S. real personal consumption expenditures showed a quarterly increase of 0.5%, down from the prior estimate of 1.4%.

On Thursday, the final annualized quarterly GDP growth rate for Q1 in the U.S. was revised upward to 2.1%, exceeding both the forecast and expectation of 1.6%.

On Thursday, initial U.S. jobless claims for last week totaled 215,000, below the forecast of 225,000.

On Wednesday, the U.S. current account deficit for Q1 stood at USD 226.8 billion, wider than the estimated deficit of USD 215.0 billion.

On Wednesday, the U.S. MBA Mortgage Applications Index rose 1.0% last week to 272.1, up from 269.5 the previous week.

On Tuesday, the Richmond Fed's Manufacturing Index for June came in at 4, down from a prior reading of 13.

On Tuesday, the preliminary U.S. Composite Output Index for June was reported at 52.2, up from 51.5 in May. The preliminary Manufacturing PMI for June stood at 55.7, above analysts' forecast of 54.6, while the preliminary Services Business Activity Index for June came in at 51.3, slightly higher than the expected 51.1.

On Tuesday, ADP data showed that the four-week moving average of weekly private-sector job gains in the U.S. stood at 30,750 as of the week ending June 6.

Key market news:

On Friday, China's State Administration for Market Regulation released a series of seven national standards titled 'Artificial Intelligence – Agent Interoperability,' aimed at promoting standardized development of agent-related industries.

On Friday, China's National Development and Reform Commission allocated RMB 62.5 billion in the third tranche of ultra-long-term special treasury bonds to continue supporting consumer goods trade-in programs.

On Friday, the National Energy Administration stated at the '15th Five-Year Plan' energy outlook briefing that grid investment during the 2026–2030 period will increase significantly compared to the 2021–2025 period.

On Friday, the world's first global technical regulation on autonomous driving systems was approved and released, with China playing a leading role in its formulation.

On Friday, the National Energy Administration announced that during the '15th Five-Year Plan' period, it will expand investment opportunities for private enterprises in major projects such as nuclear power, hydropower, and oil and gas storage and transportation, and plans to issue investment guidelines.

On Friday, it was reported that the U.S. government has asked OpenAI to roll out new models in phases, intensifying regulatory oversight over the release schedule of cutting-edge AI models.

On Friday, the National Energy Administration stated that fixed-asset investment in the national power grid during the 15th Five-Year Plan period (2026–2030) will exceed RMB 5 trillion, and it will accelerate the construction of charging infrastructure and battery-swapping facilities for electric heavy-duty trucks.

On Friday, a draft revision of the People's Bank of China Law was submitted to the Standing Committee of the National People's Congress for its first reading, proposing to explicitly establish a dual-pillar framework combining monetary policy and macroprudential regulation and to legally recognize the status of the digital yuan.

On Friday, the National Healthcare Security Administration launched the 12th round of nationally organized centralized bulk procurement of medicines, covering 65 drug products.

On Thursday, the Ministry of Commerce said China and the United States agreed to establish a trade council and will discuss cooperation on reciprocal tariff reductions, with both sides' economic and trade teams continuing negotiations.

On Thursday, the Federal Reserve’s annual stress test showed that the large banks under review have sufficient capital, creating room for them to increase dividends and share buybacks.

On Wednesday, the Ministry of Commerce released the 'Measures for Conducting Industrial and Supply Chain Security Investigations,' aimed at carrying out security assessments of industrial and supply chains and safeguarding their resilience.

On Tuesday, Trump said he had agreed to allow the Strait of Hormuz to remain open, while retaining the option to reimpose a blockade if necessary.

On Monday, the Ministry of Finance decided to impose measures on 46 U.S. companies in government procurement activities, prohibiting procuring entities from purchasing relevant products manufactured by these firms.

Weekly Market Brief:

Shares related to artificial intelligence continue to be enthusiastically pursued by investors. Meanwhile, escalating tensions in the Middle East are driving up energy and supply chain costs, forcing major central banks to maintain an extremely cautious monetary policy stance as they balance inflation control against economic stability.

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 pricing logic in the Hong Kong stock market is shifting toward hard-tech barriers and earnings certainty. Sustained participation by southbound capital fully reflects mainland investors’ recognition of the long-term allocation value of core Hong Kong-listed assets. Looking ahead to the coming week, China will release May industrial profits and June official and Caixin PMI data. The United States will publish home price indices, consumer confidence, PMIs, auto sales, average hourly earnings, unemployment rate, labor force participation rate, factory orders, and durable goods orders.

We will continue to assess the implementation of the reopening of the Strait of Hormuz following the memorandum of understanding reached between the United States and Iran. In addition, we are monitoring developments in U.S.-China relations and the potential impact of related policies on global supply chains and the Hong Kong-listed technology sector. (Source: Bloomberg, Ping An Asset Management (Hong Kong) Company Limited)

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