Hang Seng raised 2.2%
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This week, the Hang Seng Index(HSI) rose 2.2%, while the Hang Seng Tech Index(HSTECH) gained 2.3%. The Hong Kong stock market experienced a volatile pattern of early decline, midweek rebound, and end-of-week pullback.
At the start of the week, escalating U.S.-China trade tensions and rising geopolitical risks weighed on sentiment. A combination of new U.S. restrictions on chip exports to China, the EU’s threat of steel and aluminum tariffs, and the intensifying Russia-Ukraine conflict fueled risk-off sentiment, sending gold stocks higher in a flight to safety. Midweek, improved policy expectations and a shift in liquidity drove a rebound. Weaker-than-expected U.S. ADP employment and services PMI data strengthened the market’s rate-cut expectations. These were compounded by optimism surrounding potential policy announcements at the domestic Lujiazui Forum and a perceived easing of geopolitical tensions following the election of South Korea’s new president, Lee Jae-myung. These factors helped propel the Hang Seng Index to three consecutive days of gains, reaching its highest level since March 25.
However, on Friday, the index pulled back as earlier policy optimism was priced in and sector rotation took hold, ending the Hang Seng’s three-day winning streak.
As of this Thursday, the S & P 500 Index(0S&P5) rose 0.5%, the Nasdaq Composite(0NDQC) gained 1.0%, and the Dow Jones Indus Actual(0DJIA) edged up 0.1%.
On the macro front, data from the U.S. Department of Commerce showed that the core PCE price index rose 2.5% y/y in April, in line with expectations and slowing from the previous reading, marking the smallest increase in over four years; on a m/m basis, it rose 0.1%, matching both expectations and the prior reading. The overall PCE price index rose 2.1% y/y, below both expectations and the previous figure; m/m, it rose 0.1%, in line with expectations but higher than the prior reading. Notably, personal spending slowed significantly — after a 0.7% m/m increase in March, real personal spending rose just 0.1% in April. Nominal personal consumption expenditures (PCE) rose 0.2% m/m, lower than the previous figure. According to ISM, U.S. manufacturing activity contracted for the third consecutive month in May. Against the backdrop of rising tariffs, the import sub-index fell to a 16-year low. The ISM manufacturing PMI for May came in at 48.5, the lowest level since November last year, missing both expectations and the previous figure. The new orders index stood at 47.6, lower than the prior reading; order volumes shrank for the fourth consecutive month, highlighting the impact of tariff hikes on demand. The order backlog shrank at its slowest pace since September 2022. The import index dropped sharply to 39.9, hitting its lowest level since 2009, down 7.2 points in a single month — one of the largest monthly drops on record.
On trade, data from the U.S. Bureau of Economic Analysis showed that imports in April fell 19.8% m/m, marking the largest monthly drop in history. As a result, the goods trade deficit narrowed sharply to $87.6 billion, far below the market estimate of $143 billion. Analysts pointed out that this sharp contraction was likely due to businesses halting import orders in response to major tariff increases by the Trump administration, suggesting this trade surplus is unlikely to be sustained. Since personal consumption remained largely in line with expectations, it implies that businesses relied primarily on inventory drawdowns to meet demand. Retail inventories fell 0.1% m/m, while wholesale inventories were roughly flat.
On employment, ADP Research reported that U.S. private payrolls increased by just 37,000 in May — the lowest since March 2023 — significantly below expectations and the prior figure. The result missed expectations by five standard deviations, marking the biggest negative surprise since August 2022. This sharp decline directly reflects a notable weakening in employers’ hiring demand. Following the release, investor expectations for rate cuts surged. Trump expressed dissatisfaction with the data and continued to pressure Powell on social media. According to the CME FedWatch tool, as of June 5, markets priced in a 97.5% probability that rates will remain unchanged in June, while the probability of a 25-basis-point rate cut in July rose to 32.0% from 22.0% a week ago. Separately, data from the U.S. Bureau of Labor Statistics showed that there were 7.391 million job openings (JOLTS) in April — a surprise increase and higher than both expectations and the previous figure. Hiring activity also showed a modest rebound, indicating that labor demand remains resilient. However, initial jobless claims for the week ending May 31 reached 247,000, higher than expectations and the prior reading, unexpectedly rising to the highest level since October last year. Together with other recent indicators, this suggests the labor market is cooling. Meanwhile, continuing claims for the week ending May 24 fell slightly to 1.904 million, remaining above 1.9 million for a second straight week but coming in below expectations.
In terms of tariffs, President Trump announced an increase in import tariffs on steel, aluminum, and their derivative products from 25% to 50%, effective June 4, 2025 (Eastern Time). However, tariffs on steel and aluminum imports from the U.K. will remain at 25%.
In the A-share market, trading was closed on Monday due to the Dragon Boat Festival, and the CSI 300(000300) rose by 0.8% over the remaining four trading days. Trading volume remained subdued, with daily turnover consistently below the 50-day average volume level. The market is currently in a rally attempt phase, with the 50-DMA serving as a technical support level and the May 14 high of 3,960.52 acting as the resistance above.
On the macro front, data from the National Bureau of Statistics showed that China’s official manufacturing PMI stood at 49.5% in May, up 0.5 percentage points from the previous month, indicating a moderate improvement in manufacturing sentiment. The non-manufacturing PMI came in at 50.3%, down 0.1 percentage points from April, while the composite PMI was 50.4%, up 0.2 percentage points, reflecting continued expansion in overall business activity. The new export orders index and the import index rose to 47.5% and 47.1% respectively, up by 2.8 and 3.7 percentage points from the previous month. Some surveyed firms with U.S.-related businesses reported that foreign trade orders were recovering at a faster pace, indicating an improvement in import and export conditions. According to Caixin, China’s Caixin Manufacturing PMI dropped to 48.3 in May, down 2.1 percentage points from April, falling below the 50-point threshold for the first time since October 2024. Both the production index and the new orders index fell into contraction territory, reaching their lowest levels since December 2022 and October 2022, respectively. The Caixin Services PMI rose to 51.1, up 0.4 percentage points from April, showing that the pace of expansion in the services sector had picked up. This index has remained above the 50.0 mark for 29 consecutive months, indicating continued expansion in service activity. In addition, new orders increased, the employment index rose to a six-month high, and market confidence improved slightly. However, input costs and sales prices diverged, placing pressure on corporate profitability.
On the policy front, according to the website of the People’s Bank of China, in order to maintain ample liquidity in the banking system, the PBOC will conduct a ¥1 trillion reverse repo operation on June 6, 2025, using fixed-volume, interest-rate bidding with multiple price winners. The tenor will be three months (91 days). This move aims to offset the liquidity pressure from maturing funds in June, signal support for steady growth, and ease market concerns over tightening liquidity.
In terms of developments, Chinese and U.S. presidents held a recent phone call and reached an economic and trade consensus, reaffirming their commitment to fully implement the Joint Statement of the Geneva Economic and Trade Talks signed in May 2025. Both sides agreed to continue promoting the established consultation mechanisms to ensure proper enforcement of the agreement. They also agreed to hold a new round of economic and trade talks as soon as possible. The U.S. delegation will include Treasury Secretary Bessent, Commerce Secretary Rutnick, and Trade Representative Greer, with discussions focused on export controls, tariff exemptions, and rare earth supply chains. This call provides a “damage control window” for U.S.-China trade frictions, but core structural conflicts such as technological rivalry and geopolitical competition remain unresolved. The future trajectory of the relationship will depend on the extent to which the agreement is implemented and progress in rebuilding strategic trust.
Leading stocks raised this week. The average stock in the MarketSmith Hong Kong 33 rose by 1.4% for this week. Our Hong Kong Model Portfolio rose by 2.5% for this week (see details in the Model Portfolio section). Since June 20, 2013, the Hong Kong 33 is up 801.6% vs. a 18.6% up for the Hang Seng.
The best performer in our Hong Kong 33 was CONANT OPTICAL(02276), it’s a leading manufacturer of resin eyeglass lenses in China. The stock gained 13.0% this week. EPS rating stands at 75, RS rating of 94, and A/D rating of A+.
Our Hong Kong Market Status are in a Confirmed Uptrend.
From a technical perspective, the Hang Seng Index closed above key moving averages this week, including the 5-day, 21-day, 50-day, 100-day, and 200-day lines, all of which are now in a bullish alignment. The index also reached its highest level since March 25, 2025, signaling overall strength in the trend. However, trading volume continued to shrink, with daily turnover across all five sessions falling below the 50-day average volume line. In terms of support, the 21-day moving average remains a critical short-term support level, while the 24,000 mark serves as a key resistance level above.
As for the Southbound inflow via the HK-China Stock Connect, a net inflow of HK$14.93 billion was recorded over just four trading days this week. Although this was a pullback from the prior week, each day still saw net inflows, extending the streak to eight consecutive sessions, indicating continued capital deployment interest.
In summary, geopolitical risks and trade tensions are exerting near-term pressure, while rising expectations for Fed rate cuts, domestic policy support, and easing tensions on the Korean Peninsula are forming the backdrop for a rebound. Despite the decline in Southbound inflows compared to the previous week, the sustained net buying reflects investor willingness to position. As the market enters a window of policy delivery and an earnings vacuum, investors are advised to remain calm and rational, avoid chasing rallies blindly, and prioritize stocks with earnings surprises and stable technical patterns to navigate volatility with a prudent and flexible approach.
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published on June 6, 2025