Lower Rate Hike Expectations Lift Hang Seng Index as U.S. Equities Remain Volatile [Ping An Asset Management (Hong Kong) Weekly Market Recap]

Amid heightened volatility in the U.S. semiconductor sector and cautious investor sentiment, coupled with weaker-than-expected nonfarm payroll data, the Federal Reserve signaled a decline in inflation risks, leading to diminished expectations for rate hikes. Hong Kong equities reversed their prior downtrend and rebounded. The Hang Seng Index closed Friday at 23,350.03, up 2.99% from the previous week. Mainland China’s A-shares underperformed compared to Hong Kong stocks: the CSI 300 Index ended Friday at 4,842.17, slipping slightly by 0.54% for the week; the CSI 500 Index closed at 8,745.26, edging up 0.48% for the week; and the CSI 1000 Index finished at 8,620.79, rising 0.23%.

U.S. equities remained volatile last week. The Nasdaq closed at 29,329.21, gaining 0.72% for the week. The S&P 500 ended Friday at 7,483.24, up 1.76% from the prior week. The Hang Seng Tech Index stood out, closing Friday at 4,499, surging 5.72% for the week, while the Wind Technology Select HKD Net Return Index settled at 3,903.61, dipping slightly by 0.22% over the week.

High-dividend stocks showed mixed performance. Last week, the CSI Hong Kong Dividend Index closed at 3,543.55, down another 1.30% from the prior week, whereas the Solactive Global Pacific Equity Select HKD Net Return Index ended Friday at 2,000.79, climbing 2.12% for the week.

The money market fund performance remained stable, with the latest Secured Overnight Financing Rate (SOFR) in the United States quoted at 3.66%.

Key market events:

The European Central Bank raised all three key interest rates by 25 basis points last week, lifting the main refinancing rate to 2.40%, in response to eurozone inflation exceeding 3% in May. Meanwhile, the US Federal Reserve will hold its policy meeting next week—marking new Chair Waller’s debut policy decision—and markets are closely watching his monetarist policy direction. Given the previously strong US nonfarm payroll data and supply-side shocks in commodities, traders are reassessing the path of rate hikes and cuts for the year. The Bank of Japan is also intensively evaluating a potential rate hike window in June.

The Middle East situation has shown signs of de-escalation following a new round of intense conflict. After Israeli airstrikes on Monday targeted Iranian air defense and missile bases in central and western Iran, and Houthi forces launched a ballistic missile toward central Israel, U.S. President Trump stated on Thursday that the United States had canceled planned follow-up airstrikes because U.S.-Iran negotiations had advanced to the highest leadership level. Both sides are expected to sign an initial agreement over the weekend in Europe to reopen the Strait of Hormuz. Global trade and tariff frameworks continue to undergo structural reshaping.

The Trump administration is accelerating the implementation of Reciprocal Trade Agreements signed with nine trade partners, including Taiwan, Indonesia, and Malaysia. These agreements dynamically adjust tariffs through seven legal mechanisms—such as exclusion of forced labor, alignment of export controls, and investment security—to build a trade network aimed at reducing reliance on supply chains from 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 intensifying preparations for potential comprehensive trade conflicts, enhancing its defensive and response measures.

According to data from the National Bureau of Statistics, China’s May CPI rose 1.2% year-on-year, in line with market expectations, while auto exports posted significant growth. Following the State Council’s release of China’s first Regulation on Overseas Investment and its announcement of establishing an overseas investment security review system effective July 1—which formally brings individuals under regulatory oversight—Beijing has further intensified its crackdown on private equity fund financing and cross-border capital flows. Some banks have already aligned with the latest compliance requirements, implementing stricter reviews on mainland residents’ applications for offshore accounts and investments. For the week, the Hang Seng Index declined by 0.98%. Southbound net inflows totaled approximately HK$4.25 billion for the week.

Key economic data:

On Thursday, initial jobless claims in the U.S. for the prior week came in at 229,000, compared with an estimate of 220,000 and a previous reading of 225,000.

In May, China’s consumer price index (CPI) rose 1.2% year-on-year, unchanged from April’s increase, and declined 0.1% month-on-month. The producer price index (PPI) saw its year-on-year gain widen to 3.9%, the highest in recent years, and increased 0.5% month-on-month.

On Wednesday, real average hourly earnings in the U.S. fell 0.7% year-on-year in May.

On Wednesday, the U.S. consumer price index (CPI) rose 4.2% year-on-year in May, the highest since April 2023; the forecast was 4.2%, up from a prior reading of 3.8%.

On Wednesday, the U.S. core CPI increased 2.9% year-on-year in May, the highest since September 2025; the forecast was 2.9%, up from a prior reading of 2.8%. Month-on-month, it rose 0.2%, below the expected 0.30% and the previous 0.40%.

On Tuesday, U.S. exports rose 2.6% month-on-month in April, while imports increased 2.0%.

As of Tuesday, total goods trade value for the first five months of 2026 reached RMB 20.68 trillion, up 15.3% year-on-year. Exports amounted to RMB 11.91 trillion, rising 11.8% year-on-year, while imports totaled RMB 8.77 trillion, increasing 20.5% year-on-year.

On Tuesday, China's exports to the United States in May rose 35.6% year-on-year to USD 39.03 billion.

On Monday, the New York Fed’s one-year inflation expectation for May in the U.S. came in at 3.46%, down from the previous reading of 3.64%.

On Friday, average hourly earnings in the U.S. rose 0.3% month-over-month in May, matching the forecast.

On Friday, U.S. nonfarm payrolls for April were revised up to an increase of 179,000, while March was revised to a gain of 214,000.

On Friday, U.S. nonfarm payrolls increased by 172,000 in May, well above the forecast of 88,000 and the prior reading of 115,000.

On Friday, the U.S. unemployment rate held steady at 4.3% in April, remaining unchanged for the second consecutive month; this matched both the forecast and the previous reading of 4.3%.

Key market news:

On Friday, the Shenzhen branch of the China Securities Regulatory Commission and the Shenzhen Municipal Financial Regulatory Authority issued a risk alert, warning against illegal fundraising and fraud activities conducted under the guise of investing in real-world assets (RWA).

On Friday, the Ministry of Industry and Information Technology and the State-owned Assets Supervision and Administration Commission jointly issued a notice launching the 2026 Humanoid Robots and Embodied Intelligence Field Training Initiative, aiming to shift the industry from 'demonstration mode' to 'operational mode.'

On Thursday, the U.S. Securities and Exchange Commission proposed revising Rule 611, seeking to repeal the intermarket priority trading prohibition.

On Thursday, Trump stated that the U.S. would launch a fierce strike against Iran and threatened to seize oil and gas infrastructure such as Kharg Island and take control of Iran’s oil and gas markets.

On Thursday, China's Ministry of Industry and Information Technology (MIIT) and the State Administration for Market Regulation summoned automobile manufacturers suspected of engaging in irrational competition, urging them to strengthen price compliance and quality control to uphold market order.

On Thursday, the National Data Administration held a symposium to discuss refining data-related regulations to empower innovative development in artificial intelligence.

On Thursday, mandatory national standards for minimum energy efficiency requirements and energy efficiency ratings for photovoltaic modules and inverters entered the final approval stage prior to publication, signaling tighter constraints on inefficient production capacity.

On Wednesday, the U.S. International Trade Commission initiated a Section 337 investigation into GPU computing systems, DPU technologies, and related components and downstream products.

On Wednesday, the U.S. military stated it had completed 'defensive strikes' against Iran.

On Tuesday, China’s Ministry of Foreign Affairs responded to the U.S. move to place multiple Chinese companies on its 'military-linked' list, urging the U.S. to cease unwarranted suppression and stating China would take necessary measures to safeguard the rights and interests of its enterprises.

On Tuesday, the Ministry of Industry and Information Technology (MIIT) and the State-owned Assets Supervision and Administration Commission (SASAC) jointly launched a 2026 special action plan for immersive practical training in humanoid robots and embodied intelligence, aiming to promote routine deployment and application in real-world scenarios.

On Monday, the Party Committee of the National Financial Regulatory Administration convened an expanded meeting to outline key tasks, including prudently advancing the resolution of risks at local small and medium-sized financial institutions and supporting efforts to address local government debt risks.

On Monday, sources familiar with the matter said U.S. government officials have held preliminary discussions with major AI firms about the possibility of government equity stakes in artificial intelligence companies.

Weekly Market Brief:

The rapid pace of advancement in artificial intelligence has fueled investor expectations of a surge in productivity and demand, driving strong recent interest in related equities. Meanwhile, SpaceX’s upcoming initial public offering has drawn global attention. On another front, recurring volatility in the Middle East continues to push up energy costs, not only complicating the recovery of global supply chains but also compelling 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 of the Hong Kong equity market is shifting toward hard-tech competitive advantages 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 data on foreign direct investment, new yuan loans, total social financing, retail sales, industrial production, real estate investment, fixed asset investment, and the unemployment rate. The United States will release data on industrial production, capacity utilization, housing starts, building permits, retail sales, and business inventories.

Additionally, the Federal Reserve will hold its policy meeting, which will be the first chaired by new Chair Waller. We are also continuously assessing whether the U.S. and Iran can reach a ceasefire agreement and reopen the Strait of Hormuz. Furthermore, we are monitoring shifts in U.S.-China relations and the potential impact of related policies on global supply chains and the technology sector in Hong Kong equities. (Source: Bloomberg, Ping An Asset Management (Hong Kong) Company Limited)

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