Hang Seng fell 3.5%
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This week, the Hong Kong stock market experienced a “rally-then-pullback” pattern, with the Hang Seng Index(HSI) falling by 3.5%, losing the 25,000-point support level. The Hang Seng Tech Index(HSTECH) dropped by 4.9%.
The Politburo meeting of the Communist Party of China this week analyzed the current economic situation and outlined the economic work for the second half of the year. The focus was on stabilizing employment, businesses, markets, and expectations.
However, the policy content did not exceed market expectations, and no stimulus measures for the real estate sector were mentioned, leading to a slight decline in market sentiment. Meanwhile, the U.S. Federal Reserve’s July meeting left interest rates unchanged, and Chairman Powell did not provide guidance for a rate cut in September. This caused the U.S. Dollar Index to surge, breaking the 100-point level and reaching a nearly three-month high, which prompted accelerated foreign capital outflows from the Hong Kong market.
Additionally, the manufacturing PMI has been below the expansion-contraction line for four consecutive months, indicating a slowdown in manufacturing activity. Against the backdrop of a weak macroeconomic environment, previously high-performing sectors cooled off, while the intensifying geopolitical and trade risks, as well as the pullback pressure on leading innovative pharmaceutical stocks, marked the end of the anti-competition rally, causing a pullback in the Hong Kong stock market.
In the U.S. stock market, as of this Thursday, the S & P 500 Index(0S&P5)decreased by 0.8%, the Nasdaq Composite(0NDQC) rose by 0.1%, both hitting new historical highs; the Dow Jones Indus Actual(0DJIA) declined by 1.7%.
On the macroeconomic front, data from the Bureau of Economic Analysis shows that the U.S. real GDP annualized quarter-over-quarter preliminary growth for Q2 was 3%, completely reversing the contraction in Q1 and significantly exceeding market expectations. During the same period, the core Personal Consumption Expenditures (PCE) price index for Q2 posted an annualized quarter-over-quarter preliminary growth of 2.5%, significantly down from the previous value, but still above expectations. The rebound in inflationary pressure is expected to keep the Federal Reserve cautious regarding interest rate policies. Specifically, the June PCE price index rose by 2.6% y/y, exceeding both expectations and the previous value; m/m, it increased by 0.3%, matching expectations but higher than the previous month. The core PCE price index rose by 2.8% y/y, above expectations and flat with the previous value, reaching the highest level since February of this year; m/m, it increased by 0.3%, in line with expectations but higher than the prior month. Additionally, the U.S. Department of Commerce reported that June durable goods orders dropped sharply by 9.3% m/m, slightly better than expected, but still far below the previous value, marking the worst performance since the COVID-19 pandemic in 2020. This significant fluctuation was primarily due to an exceptional adjustment in non-defense aircraft orders — which had surged by 230% m/m in May but dropped by 50% in June.
Regarding interest rate policy, following the FOMC meeting, the Federal Reserve announced it would keep the federal funds rate target range unchanged at 4.25%–4.5%. At the FOMC press conference, Chairman Jerome Powell stated that the effectiveness of the current policy remains uncertain, and a reasonable baseline assumption is that tariffs have only a short-term impact on inflation. He further added that the transmission of tariffs to prices might be slower than previously expected, but the effects have already started to show, and it is still too early to determine the extent of the impact. According to the CME FedWatch Tool, as of July 31, the market probability of a 25 basis point rate cut in September has dropped to 41.2%, with the probability of rate cuts in October and December both below 50%.
On tariffs, U.S.-China trade talks in Stockholm reached a consensus, with both sides agreeing to extend by 90 days the previously suspended U.S. 24% reciprocal tariffs on China and China’s countermeasures. The U.S. and EU reached a 15% tariff agreement, with the EU committing to invest $600 billion in U.S. assets, purchase $750 billion worth of U.S. energy products and military equipment, and open up a $20 trillion market, accepting U.S. auto and industrial standards for the first time. The U.S. and South Korea signed a “comprehensive and complete” trade agreement, replacing the previous threat of up to 25% punitive tariffs with a 15% general tariff and a commitment from South Korea to invest $350 billion in the U.S. Additionally, President Trump announced that starting August 1, 25% tariffs would be imposed on goods imported from India, alongside other “punitive measures,” accusing India of being a major buyer of Russian energy; a 40% tariff on Brazil was also announced, making the total tariff 50%. However, the U.S.-Mexico tariff agreement has been extended for 90 days, during which the current tariff on Mexico will remain unchanged. The White House also announced that starting August 1, a 50% tariff would be imposed on imported semi-finished copper, although raw copper and scrap copper will be exempt.
On the employment market, the U.S. Bureau of Labor Statistics reported that June job openings under the JOLTS survey were 7.437 million, below expectations and the previous value. This marks the first decline after two consecutive months of increases, and the overall level has remained relatively stable over the past year, indicating steady labor demand. Meanwhile, new hires significantly dropped to 5.204 million, the lowest in a year and the second-lowest since the pandemic, with the hiring rate slowing to 3.3%, the lowest since November last year. The number of layoffs remained low, and voluntary separations decreased to 3.142 million, nearing the lowest level since the pandemic. In terms of initial jobless claims, the week ending July 26 saw 218,000 claims, lower than expected; continuing claims for the week ending July 19 stood at 1.946 million, unchanged from the revised previous number. According to ADP Research, U.S. employment increased by 104,000 in July, significantly exceeding market expectations and the previous value, but still considerably lower than the recent average.
In the A-shares market, the CSI 300(000300) experienced a pullback this week, dropping by 1.8% and falling back below the 4100-point mark. Weekly trading volume slightly decreased compared to last week, but remained notably higher than the 10-week average. In terms of daily trading volume, the first four days saw significant volume above the 50-day average, with a slight pullback on Friday, though it still remained above the 50-day average. The market remains in an attempted rebound phase, with the 21-DMA acting as key short-term support, while resistance is concentrated at the 4200-point mark.
On the macro front, data from the Ministry of Finance shows that in the first half of the year, China’s fiscal revenue reached 11.56 trillion yuan, with tax revenue growing for the third consecutive month year-on-year; national fiscal expenditure totaled 14.13 trillion yuan, up 3.4% y/y. The third batch of 690 billion yuan in trade-in subsidies has been allocated, with the remaining 690 billion yuan to be distributed in October. During the same period, state-owned enterprises (SOEs) achieved total operating revenue of 40.745 trillion yuan, down 0.2% y/y, while total profit reached 2.18 trillion yuan, down 3.1% y/y. By the end of June, the asset-liability ratio of SOEs stood at 65.2%, up 0.3 percentage points y/y. Data from the National Bureau of Statistics reveals that profits of industrial enterprises above designated size fell by 4.3% y/y in June, an improvement over the 5.0% drop in May. New emerging industries, particularly equipment manufacturing, showed faster profit growth, with the effect of “Two New” policies continuing to be evident. From January to June, total profits of industrial enterprises above designated size reached 343.65 billion yuan, a 1.8% y/y decline. By industry, the profit of the ferrous metal smelting and rolling processing industries surged by 13.7 times, while the mining industry saw a 30.3% drop in profit. Additionally, China’s manufacturing PMI for July was 49.3%, showing a seasonal q/q decrease of 0.4 percentage points. The non-manufacturing PMI and the composite PMI output index were 50.1% and 50.2%, respectively, down 0.4 and 0.5 percentage points from last month, but both remained in expansionary territory, indicating continued expansion in overall economic output.
Regarding important meetings, the Politburo of the Communist Party of China held a meeting and emphasized that maintaining policy continuity and stability, while enhancing flexibility and foresight, is key to economic work in the second half of the year. More active fiscal policies and moderately relaxed monetary policies need to be implemented in detail. China and the U.S. reached a consensus during trade talks, agreeing to continue extending the suspension of 24% reciprocal tariffs and corresponding Chinese countermeasures for 90 days.
In other news, the State Council’s executive meeting passed the “Opinions on Deepening the Implementation of the ‘Artificial Intelligence+’ Action Plan,” which aims to accelerate the commercial application of artificial intelligence, promoting its integration across various sectors of economic and social development. Additionally, the Cyberspace Administration of China summoned Nvidia for a discussion on the security risks posed by a backdoor in the H20 computing chips it sells to China, requiring Nvidia to explain and submit relevant documentation.
Leading stocks failed this week. The average stock in the MarketSmith Hong Kong 33 fell by 3.2% for this week. Our Hong Kong Model Portfolio fell by 3.9% for this week (see details in the Model Portfolio section). Since June 20, 2013, the Hong Kong 33 is up 939.7% vs. a 22.1% up for the Hang Seng.
The best performer in our Hong Kong 33 was INSPUR DIGI ENT(00596), it’s a leading information technology company in China. The stock gained 19.0% this week. EPS rating stands at 99, RS rating of 95, and A/D rating of A-.
Our Hong Kong Market Status are in a Confirmed Uptrend.
From a technical perspective, the pullback this week caused the Hang Seng Index to fall below the 25,000-point level, with a downward gap opening up and a significant increase in volume, directly breaking through this key level. On Friday, the index further dipped below the 21-day moving average, indicating a short-term need for correction. From a technical support perspective, the 50-day moving average forms an important short-term support level, while resistance is concentrated around the gap between 25,000.1 and 25,082.2 points.
In terms of capital flow, the Southbound inflow via the HK-China Stock Connect remained strong this week, with a total net inflow of HKD 59.02 billion, the highest since April 11 of this year, and a significant increase compared to last week. The net inflow has continued for 11 consecutive weeks.
Overall, the deep pullback in the Hong Kong stock market this week can be attributed to the combined release of three pressures: “policy expectation mismatch, external liquidity tightening, and weak economic data.” In the short term, the market still needs to digest the strong U.S. dollar impact caused by the Fed’s hawkish stance, compounded by uncertainties like the U.S.-China tariff dispute and geopolitical risks. As a result, the Hang Seng Index may continue to experience a volatile bottoming-out phase. However, the Southbound inflow is providing support against the downward trend, reflecting local investors’ recognition of the valuation floor in Hong Kong stocks. Moving forward, it is crucial to monitor developments in U.S.-China tariff negotiations, potential domestic policy adjustments, and the U.S. dollar index. If the 50-DMA holds, the market could enter a “defensive rebound” phase.
At this stage, it is advised that investors remain calm and rational, avoiding blind chasing of rallies. Priority should be given to stocks with better-than-expected earnings and solid technical patterns, using a prudent strategy to respond flexibly to market fluctuations.
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published on August 1, 2025