China Securities Co.,Ltd.: A trend-based recovery still requires confirmation; Hong Kong stocks are expected to mainly fluctuate and build a bottom.

China Securities Co., Ltd. released a research report stating that after last week's sharp decline, the valuation pressure on Hong Kong stocks has been released to some extent: the Hang Seng Tech Index has fallen to a more than two-year low, the valuation compression of growth stocks has been relatively thorough, and Friday's rebound on increased volume also shows that bargain-hunting funds at low levels are beginning to become active. High-dividend assets such as Chinese banks and utilities still have allocation value in a high-interest-rate environment, providing bottom support for the index. However, a trend-based recovery still needs confirmation. It is expected that the index level will mainly fluctuate and build a bottom, and in terms of allocation, a barbell structure with dividend defensive assets as the base while waiting for clear stabilization signals in growth sectors is relatively favored. Last week's global major asset performance overview: Middle East tensions pushed up oil prices, while AI capital expenditure and financing concerns suppressed risk appetite, leading to corrections in most global stock markets. A-shares first fell and then rose, with the index continuing to come under pressure and probe lower during the week; Hong Kong stocks' Hang Seng Tech underperformed the broad market; U.S. tech heavyweights were relatively weak, while equal-weighted and small-cap stocks were relatively favored. Safe-haven demand pushed down yields on U.S., German, and Japanese government bonds. Domestic bond market liquidity was ample, but the ultra-long end performed relatively weakly. In commodities, crude oil rose, gold corrected significantly under the impact of tightening expectations and deleveraging, and copper prices fell slightly; the U.S. dollar fluctuated overall, while the renminbi and Japanese yen were relatively strong. I. China Stock Market: A-shares and H-shares adjusted in sync Last week's China A-share and H-share review: A-shares bottomed and rebounded, while Hong Kong stocks' Hang Seng Tech underperformed the broad market. A-shares: Last week, A-shares overall showed a V-shaped pattern of first falling and then rising, bottoming and rebounding, with significant style divergence between large and small caps and a distinct pattern of low volume early in the week and high volume later. During the week, the index continued to come under pressure and probe lower, with the ChiNext Index repeatedly hitting new stage lows. On Friday, bottom-fishing funds entered concentratedly, driving a broad rebound, and growth tracks saw concentrated repair. Last week, small- and mid-cap indices outperformed against the trend, while large-cap growth heavyweights were relatively weak. By sector, computer, machinery, and automobile sectors led gains, while coal, communications, power equipment, and new energy sectors led declines. H-shares: Last week, the Hang Seng Index fluctuated in a narrow range, and the Hang Seng Tech Index significantly underperformed the broad market. Hong Kong stock performance was mainly affected by the interplay of three factors: rising overseas rate hike expectations and high U.S. Treasury yields suppressing valuations, risk aversion brought by Middle East geopolitical tensions and high oil prices, and China's September CPI and PPI showing weak domestic demand recovery. At the sector level, funds rotated from high-valuation tech growth to low-valuation blue chips and defensive sectors. Consumer discretionary, financials, and utilities led gains, while growth sectors such as semiconductors, AI hardware, and pharmaceuticals came under obvious pressure. China stock market outlook: A short-term oversold repair window has opened. A-shares: After Friday's concentrated release of panic selling pressure, the short-term oversold repair window has officially opened. Current policy support signals are clear, and further downside room for the index is limited. However, this rebound is still a technical repair rather than a trend reversal. Going forward, it is necessary to verify the sustainability of volume and the pace of third-quarter earnings delivery. Overseas liquidity disturbances remain, and the bottoming process may still see repeated fluctuations. Structurally, tech growth has superior elasticity. Hong Kong stocks: Looking further, after last week's sharp decline, the valuation pressure on Hong Kong stocks has been released to some extent: the Hang Seng Tech Index has fallen to a more than two-year low, the valuation compression of growth stocks has been relatively thorough, and Friday's rebound on increased volume also shows that bargain-hunting funds at low levels are beginning to become active. High-dividend assets such as Chinese banks and utilities still have allocation value in a high-interest-rate environment, providing bottom support for the index. However, a trend-based recovery still needs confirmation of two conditions. First, overseas discount rate pressure must ease substantially. If December rate hike expectations decline and U.S. Treasury yields fall significantly from above 5%, the valuation elasticity of high-duration growth stocks can recover. Second, southbound capital return and incremental capital entry must again form a joint force. The reversal of last week's southbound selling and large ETF outflows is the core signal for observing a turning point in the capital flow situation. Before that, it is expected that the index level will mainly fluctuate and build a bottom, and in terms of allocation, a barbell structure with dividend defensive assets as the base while waiting for clear stabilization signals in growth sectors is relatively favored. II. China Bond Market: Ample liquidity continues, ultra-long end relatively weak. Last week's bond market review: Last week (10/19-10/23), the long end of China bonds was mainly disturbed by regulatory window guidance, and the ultra-long end was relatively weak. Throughout the week, short-end rates edged down, while long-bond yields first fell and then rose. In the first half of the week, yields fell, driven by relatively ample liquidity and signals from the Financial Street Holdings Forum that monetary policy was shifting its anchor. On the liquidity side, DR001 continued to run near 1.26%; on the policy side, the Financial Street Holdings Forum explicitly stated it would "study the timing to switch the maturity of the PBOC's main open market operation instrument to overnight." In the second half of the week, yields turned upward, with disturbances concentrated on market expectations of regulatory window guidance and the "stock-bond seesaw" effect. For the full week, 2Y and 10Y Chinese government bond yields fell by 0.7bp and 0.9bp, respectively, from the previous week, while 30Y rose by 0.7bp. China bond outlook: The risk-reward for China bonds is indeed limited. Recently, liquidity has remained ample, and funding rates have run at low levels, supporting China bonds. However, regulatory constraints on long-bond trading have become more visible, and trading behavior and duration may face constraints, with upside risk at the long end rising accordingly. Combined with profit-taking demand after the earlier rally and long-bond yields already compressed to low levels, the risk-reward has thinned, and further declines require new macro or policy catalysts. Looking ahead, the underlying environment of ample liquidity remains, but increased volatility in the equity market may cause periodic disturbances to the bond market. Going forward, it is recommended to focus on tax-period and month-end liquidity, the regulatory stance on long-end rates and duration, and the sustainability of the equity market rally. III. U.S. Stocks: Tech heavyweights under pressure, equal-weighted and small caps favored U.S. stock review: Last week, major U.S. stock indices diverged, with tech heavyweight adjustments coexisting with relative strength in non-tech sectors. The S&P 500 fell 0.5%, the Nasdaq Composite fell 0.7%, the Dow rose 0.4%, the Russell 2000 rose 2.0%, and the Philadelphia Semiconductor Index fell 3.2%, its third consecutive weekly decline, with a cumulative three-week drop of 17.9%. The S&P 500 Equal Weight Index rose 1.1%, outperforming the market-cap-weighted index by 1.6 percentage points. By sector, the AI hardware chain and communication services posted the largest declines, while software, defensive, and energy sectors rose. Communication services fell 6.2%, industrials fell 1.9%, and information technology fell 0.3%; energy rose 1.5%, health care rose 1.5%, and the software sector ETF rose 5.99%. Meta fell 9.40% for the week. The company raised the lower bound of its full-year capital expenditure and disclosed about $825 billion in future spending commitments, with free cash flow turning negative for the first time since listing. Market concerns about large tech companies expanding capital expenditure through debt spilled over to semiconductor equipment, power equipment, optical communications, and emerging cloud service providers. CrowdStrike rose 13.27% for the week, with software and cybersecurity stocks rebounding as AI substitution concerns eased and the PHP vulnerability incident drove gains. Falling rates supported housing and some defensive sectors, while rising oil prices supported energy. U.S. stock outlook: Last week's pullback was accompanied by concentrated institutional deleveraging, and institutional selling has largely been released. We expect U.S. stocks to remain range-bound in the short term. Regaining upward momentum requires clearer easing signals and stabilization of AI credit risk. Key focuses for next week: First, earnings reports from the three major cloud providers. Tech giants' capital expenditure and financing arrangements will determine whether the AI trade can stabilize on the credit side. Second, central bank meetings of the Federal Reserve, European Central Bank, and Bank of Japan. The rate hike window is concentrated in December, and the Fed's post-meeting guidance and U.S. core PCE will determine December rate hike pricing. IV. Overseas Interest Rates: U.S. Treasury yields fell, curve flattened Last week's overseas rate review: Last week, U.S. Treasury yields fell overall, and the curve flattened. Risk asset adjustments triggered by AI capital expenditure, weakening housing demand, and overseas safe-haven demand jointly supported U.S. Treasuries, while short covering amplified the decline in rates. The 2-year U.S. Treasury yield fell 5 basis points to 4.69%, the 10-year fell 9 basis points to 5.00%, and the 30-year fell 10 basis points to 5.33%. Keeping rates unchanged at the October meeting remained the main market expectation, and rate hike pricing for the year declined somewhat. On the last trading day, oil prices rose to their highest since late April, and yields rebounded 4 basis points. Overseas rate and FX outlook: We lean toward no rate hike at the October meeting, but further declines at the long end still require support from growth and inflation data. Slowing housing demand and tighter tech financing are favorable for U.S. Treasuries, but Brent crude oil rose 6.2% for the week to $116.72 per barrel, meaning energy inflation constraints remain. Next week, focus on the Fed's balancing of growth and inflation risks, third-quarter GDP, and September core PCE. If oil prices remain high, this safe-haven-driven decline in rates may still see repeated fluctuations. V. Commodities: Supply-side constraints and tightening narrative collide again Last week's commodity review: Divergence between gold and crude oil intensified, with "supply-side constraints" and the "tightening narrative" colliding again. Middle East conflict pushed oil prices above $110, and high oil prices in turn suppressed precious metals through inflation expectations. In a window where a December rate hike has become the new anchor and unchanged policy in October is basically confirmed, commodity divergence intensified, continuing along the path of "supply with hard constraints (crude oil, copper) relatively outperforming, while demand- and financial-attribute-driven commodities (precious metals, ferrous) come under pressure." Last week was gold's largest weekly pullback of the year. Gold fell below the $4,000 integer mark, hitting a new low since July and its worst weekly performance since June. The dominant logic was that Middle East conflict pushed up oil prices, oil prices raised expectations of sticky inflation, and this strengthened pricing for the Fed to stay "higher for longer" and even hike in December. Last week's oil price increase was driven by the supply disruption expectation from "attacks on Saudi facilities and tanker loading links in the strait," rather than realized actual supply losses. Middle East crude oil exports have returned to more than 90% of pre-war levels, and the hard shortfall in refined products (especially diesel) provides relatively strong bottom support. Last week, the dominant logic in the copper market was the shift in LME inventories from destocking to restocking. The previous bullish logic of "tight supply in non-U.S. regions" showed signs of loosening, but on the industrial side, tight mines (TC remaining deeply negative, October output falling to the year's low) supported the price floor, and copper's decline was limited. Global commodity outlook: Gold: ETF selling pressure has temporarily eased, industrial commercial longs have increased positions, diverging from the retreat of speculative positions. Once rate expectations peak, the repair elasticity could be relatively large. Copper: In the short term, the price center may shift slightly lower. The triple bearish factors of LME inventories rising by 48,000 tons in a single week last week, the clearing of the strike premium, and the lack of a clear conclusion on tariff policy need time to digest; however, hard constraints at the mine end (TC falling to a new low of -$248/ton, October output at the year's low) determine that downside room is limited. Crude oil: The risk premium has already risen rapidly, and the success rate of chasing highs in the short term has declined, but before signals of easing in the situation appear, room for pullback is likewise limited. VI. FX: Oil price surge failed to lift the dollar; the market shifted from "inflation trades" to "growth and credit risk trades." FX review: The biggest feature of last week's FX market was that oil prices rose significantly, but the dollar did not strengthen in tandem. The dollar index was basically flat near 101.8, once rising to 102.1 during the week and then falling to a low near 101.5. Early in the week, oil prices were still near $108. In the second half of the week, Middle East tensions escalated again, and Brent rose to $116.7 on Friday, a near-half-year high. According to the previous logic, high oil prices should push up inflation, Fed rate hike expectations, and the dollar, but this chain clearly weakened last week. The core reason is that the market began trading two opposing forces at the same time: "oil-price inflation" and "AI financing pressure." Capital expenditure and financing needs of tech companies such as Meta again triggered market concerns about AI investment returns. Tech stocks fell sharply on Thursday, funds poured into U.S. Treasuries, and yields fell by nearly 20bp in a single day at one point; market expectations for further Fed rate hikes by year-end also cooled. As a result, although high oil prices raised tail risks to inflation, they did not sustainably push up U.S. Treasury rates, and the dollar therefore lacked further interest-rate-differential drivers for a breakout. In other words, the market is interpreting AI financing pressure as a U.S.-specific CKH HOLDINGS financial conditions risk, rather than a simple "risk-off buy dollar" move. FX outlook: Looking ahead, the dollar is still more likely to fluctuate in the 101-103 range in the short term and temporarily lacks conditions for a renewed one-way rise. If high oil prices eventually pass through to inflation and again raise the probability of a Fed rate hike by year-end, U.S. Treasury rates and the dollar may still rise in tandem; but if AI financing and tech capital expenditure concerns continue to push down U.S. Treasury yields, then even if oil prices remain high, the dollar may find it difficult to break above previous highs. Next week's Fed, ECB, and BOJ meetings will become new pricing nodes.