The main board and the ChiNext Index underwent mild corrections before accelerating downward on Friday, whereas the STAR 50 Index stood out as uniquely resilient, driven by domestic substitution expectations within memory chips and semiconductors. Exceptional performance was seen across electronic sub-sectors this week—namely memory chips, lithography machines, lab-grown diamonds, and advanced packaging.
Capital rotation within the tech sector favored a shift from high to low valuations—briefly flowing from CPO/optical modules into glass substrates and silicone, while some short-term capital dipped into the livestock sector. However, no effective rotation into high-dividend defensive assets occurred; instead, the broader trend reflected widespread de-risking. In summary, this week was a textbook case of quarter-end profit-taking coupled with a valuation contraction among high-flying tech names.
Hong Kong Equities Squeezed by Strong US Dollar and Weak Domestic Catalysts
Weighed down by a drag from overseas tech peers and a strong US dollar, Hong Kong stocks suffered a unilateral downward trend this week. Heavyweight internet names led the decline, while the semiconductor sector capitulated to the spillover effects of a multi-day sell-off in Nasdaq-listed chip stocks. Domestic banks and insurers also pulled back on weakening macroeconomic expectations. To summarize, Hong Kong equities experienced a classic "externally driven decline compounded by a lack of domestic catalysts," resulting in a double whammy for internet and semiconductor stocks. Only pharmaceuticals, select hard-tech IPOs, and aviation displayed sporadic resistance. In the short term, close attention should be paid to the trajectory of the US dollar and whether interim earnings previews from tech giants can provide a window for sentiment repair.
Warsh and Greenspan
The core focus this week lies on the US non-farm payrolls and Warsh's speech at Sintra, as markets attempt to decipher the reaction function of the new Warsh-led Federal Reserve: whether they will adopt a wait-and-see approach regarding AI-driven inflation and investment, or pre-emptively hike rates to cool down the economy. The current probability of a July rate hike is marginal, and the upcoming payroll data alongside Warsh's remarks will determine whether this probability climbs toward a coin-flip scenario or drops back toward zero; until the Fed explicitly rules out a hike, a baseline premium remains priced into the market. If non-farm payroll growth is robust and the unemployment rate stays low, the likelihood of a rate hike will rise; conversely, weak data or a rising unemployment rate, paired with falling commodity prices, could cause this premium to fade.
