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Memory and Semiconductor Sectors Under Pressure; Hong Kong Stocks Rise Against the Trend [Ping An Asset Management (Hong Kong) Weekly Market Recap]

Last week, global capital markets were once again rattled by renewed investor concerns over AI and semiconductor investments, dragging U.S. equity indices lower across the board. Japanese, South Korean, and mainland Chinese markets also experienced significant turbulence under this negative influence, with sharp volatility in South Korea’s semiconductor sector further deepening investor anxiety. Some capital rotated out of AI-related stocks into traditional sectors, allowing Hong Kong equities to outperform other markets, with the Hang Seng Index rising against the broader downtrend.

The Hang Seng Index closed Friday at 24,562.24, up 1.60% from the previous week. Mainland China’s A-share market declined sharply: the CSI 300 Index ended Friday at 4,529.10, down 5.26% for the week; the CSI 500 Index closed at 7,513.76, plunging 11.64% over the week; and the CSI 1000 Index finished at 7,167.996, falling 12.57%.

U.S. equities were weighed down by investor concerns over AI and semiconductor investments. The Nasdaq closed at 28,592.66, down 4.13% for the week. The S&P 500 ended Friday at 7,457.69, a weekly decline of 1.55%. The Hang Seng Tech Index was similarly affected, closing last Friday at 4,623.17, down 2.09% for the week, while the Wind Tech Select HKD Net Return Index closed at 4,101.65, gaining 0.84% over the week.

High-dividend Hong Kong stocks demonstrated strong defensive characteristics amid market volatility. Last week, the CSI Hong Kong Dividend Index closed at 3,746.71, rising another 3.17% from the prior week, and the Solactive Global Pacific Equity Select HKD Net Return Index closed Friday at 2,014.98, up 0.21% for the week.

The money market remained stable, with the latest quoted rate for the U.S. Secured Overnight Financing Rate (SOFR) at 3.62%.

Key market events:

China’s second-quarter GDP growth slowed to 4.3%, unexpectedly falling below the official target range. The GDP deflator turned positive for the first time in three years, but the momentum may be hard to sustain as price increases were largely confined to the oil and AI sectors. Both exports and imports in June exceeded expectations, though China’s General Administration of Customs noted that the external environment remains complex and volatile, posing some pressure for the second half of the year. Credit expansion last month fell short of expectations due to slower government bond issuance and weak financing demand. There are early signs of stabilization in the property market, with the decline in average new home prices narrowing.

Federal Reserve Chair Waller declared 'zero tolerance' for inflation during his congressional testimony. However, the U.S. June CPI declined month-over-month for the first time since 2020, and the PPI increase for the same period also came in below expectations, gradually dampening rate hike expectations. The Bank of Canada held rates steady for the sixth consecutive meeting. Meanwhile, the Bank of Korea raised rates for the first time since early 2023, citing persistent inflation pressures fueled by an AI-driven chip boom. The Reserve Bank of New Zealand may also hike rates further. The U.S. Trade Representative stated that the U.S.-China summit in September would assess existing commitments rather than forge new agreements; Trump accused China of interfering in the 2020 U.S. election, posing a threat to bilateral relations.

The U.S. has launched repeated strikes against Iran, escalating tensions and sharply reducing oil shipments through the Strait of Hormuz. Trump reiterated that Tehran is seeking talks with the U.S., but Iranian media reported there are currently no plans to negotiate with Washington. Vice President Vance stated the U.S. will not deploy ground troops to Iran. Despite strong earnings from key companies like Taiwan Semiconductor and ASML, high valuations have led investors to question the room for further gains, triggering sharp declines this week across AI-related stocks from Japan and South Korea to China and the U.S. Hedge funds that profited handsomely this year from AI-related equities are already planning exits, closely watching for signs that the rally may become unsustainable.

Institutional reports indicate retail investors are pouring into U.S. equities at a pace close to the fastest on record, yet demand for downside protection is rising. For the week, the Hang Seng Index rose 1.60%. By sector, financials contributed the most to the index, while information technology weighed it down the most. Southbound capital recorded a net inflow of HK$37 billion this week.

Key economic data:

On Wednesday, U.S. core PPI for June, excluding food and energy, rose 0.2%, below the expected 0.3% increase.

On Wednesday, the U.S. final demand PPI for May was revised down to a 0.6% increase from the previously reported 1.1%. The June final demand PPI fell 0.3%, compared with expectations for no change.

On Wednesday, the New York Fed’s Empire State Manufacturing Index for July came in at 15.6, above the expected 8.8 and the prior reading of 5.7.

On Wednesday, at the end of June, broad money supply (M2) stood at RMB 356.71 trillion, up 8% year-on-year. RMB loans increased by RMB 10.72 trillion in the first half of the year.

On Wednesday, data released by the National Bureau of Statistics showed that production of industrial robots by large-scale enterprises reached 110,702 units in June, an increase of 28.1% year-on-year.

On Wednesday, data released by the National Bureau of Statistics showed that production of integrated circuits by large-scale enterprises reached 51.7 billion units in June, up 18.8% year-on-year.

In June, value-added industrial output from large-scale enterprises rose 5.3% year-on-year in real terms, accelerating by 0.8 percentage points from the previous month. On a month-on-month basis, industrial output from large-scale enterprises increased by 0.76% in June. From January to June, industrial output from large-scale enterprises grew 5.4% year-on-year.

On Tuesday, the U.S. Consumer Price Index (CPI) for June rose 3.5% year-on-year, below the forecast of 3.8% and down from the prior reading of 4.2%. The CPI declined 0.4% month-on-month in June, compared with the forecasted drop of 0.1% and the previous increase of 0.5%.

On Tuesday, the U.S. core CPI for June rose 2.6% year-on-year, below the forecast of 2.8% and down from the prior reading of 2.9%. Core CPI was flat month-on-month in June, versus the forecasted increase of 0.2%.

On Tuesday, ADP reported that U.S. private-sector employment increased by 19,750 last week, compared with the previous figure of 21,000.

On Tuesday, the NFIB Small Business Optimism Index for June came in at 97.4, above the forecast of 95.8 and the prior reading of 95.3.

On Tuesday, data released by the General Administration of Customs showed that China’s integrated circuit exports totaled USD 177.28 billion in the first half of the year, surging 96.1% year-on-year.

On Tuesday, calculations based on data released by the General Administration of Customs on the 14th showed that China’s dollar-denominated exports in June rose 27.0% year-on-year, exceeding the forecast of 19.0%, while imports surged 36.0% year-on-year, surpassing the expected gain of 26.1%.

Key market news:

On Friday, three government departments announced that consumption taxes on certain battery and photovoltaic cell products will be reinstated in phases and gradually increased.

On Friday, the keynote speech at the opening ceremony of the World Artificial Intelligence Conference emphasized working together to build a fair and equitable global AI governance system.

On Friday, the National Development and Reform Commission released an action plan for cooperative AI development, proposing measures such as facilitating cross-border data flows and interconnecting intelligent computing infrastructure.

On Friday, initiatives were announced to support developing countries over the next five years, including providing AI training slots and establishing international AI application cooperation centers.

On Friday, the State Administration of Foreign Exchange stated it will crack down hard on underground banks and other foreign exchange violations to maintain order in the forex market.

On Friday, the State Administration of Foreign Exchange said it is advancing preparatory work and aims to issue a new round of QDII quotas as soon as possible to support compliant overseas securities investment demand.

On Friday, the National Financial Regulatory Administration issued guidance requiring financial institutions not to blindly call in loans, cut off credit, or reduce lending to enterprises affected by flooding during the flood season.

On Thursday, Taiwan Semiconductor confirmed it will invest an additional USD 100 billion in its Arizona operations in the United States.

On Wednesday, the U.S. military announced it has begun a new wave of strikes against Iran aimed at degrading its ability to attack commercial vessels transiting the Strait of Hormuz.

On Wednesday, the Cyberspace Administration of China published a notice listing seven newly registered mobile-side generative artificial intelligence services, including 'Apple Intelligence.'

On Wednesday, the People's Bank of China stated it would calibrate the intensity and timing of monetary policy and enhance both counter-cyclical and cross-cyclical adjustments.

On Wednesday, the White House launched the 'Golden Eagle' cybersecurity AI initiative to coordinate vulnerability response and streamline processes.

On Tuesday, the central bank announced it would conduct large-scale six-month outright reverse repos to maintain ample liquidity.

On Monday, Trump said the United States would reinstate sanctions against Iran and proposed charging fees for cargo transported through the Strait of Hormuz.

Weekly market brief:

Following a memorandum of understanding between the U.S. and Iran, renewed conflict has erupted, bringing the risk of a Strait of Hormuz blockade back into focus and exerting negative pressure on the global economy. Escalating tensions in the Middle East are driving up energy and supply chain costs, compelling major central banks to adopt an extremely cautious monetary policy stance as they balance inflation control against growth stability.

Equity markets remain caught in a tug-of-war over AI-related narratives. Rapid advancements in artificial intelligence have fueled investor expectations of a surge in productivity and demand, leading to sharp swings in related stocks recently. Meanwhile, traditional sectors—after a significant pullback in June—have shown clear signs of rebound, and sector rotation is expected to remain highly active going forward.

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.

Hong Kong equity valuations are increasingly anchored in hard-tech barriers and earnings certainty. Sustained southbound capital flows clearly reflect mainland investors’ recognition of the long-term allocation value of core Hong Kong assets. Looking ahead to the coming week, China will release its foreign direct investment data for June. The U.S. will publish leading indicators, PMI readings, new home sales, and building permits. We are also closely monitoring Strait of Hormuz transit conditions amid escalating U.S.-Iran tensions. Additionally, we are tracking developments in U.S.-China relations and assessing how relevant policies from both countries may impact global supply chains and Hong Kong’s technology sector. (Source: Bloomberg, Ping An Asset Management (Hong Kong) Company Limited)

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