Chinese information technology innovation concept stocks declined collectively. As of press time, KINGSOFT (03888) fell 7.44% to HK$33.84; CHINASOFT INT'L (00354) dropped 4.75% to HK$5.81; INSPUR DIGI ENT (00596) decreased 4.94% to HK$8.09.

On the news front, US President Trump recently announced that export controls on critical software to China will be implemented starting November 1st. Lyon released a research report stating that this event has triggered strong market sentiment regarding "domestic substitution" in China's software industry. Due to the lack of a clear definition of "critical software" and ongoing uncertainty in US-China negotiations, Lyon expects that fundamentals will not change immediately.

Lyon noted that Trump's announcement did not provide a clear definition of "critical software" and expects that the US and China will negotiate on this issue. "Domestic substitution" has been ongoing for several years since 2018; therefore, Lyon believes its impact will not be immediately reflected in Chinese software companies' fundamentals.

If the US indeed implements export controls starting November 1st, Lyon believes that Chinese industrial software, office software, and enterprise resource planning (ERP) software companies will benefit.