On Friday (October 31), the A-share and Hong Kong stock markets experienced volatile adjustments, with the ChiNext Index falling over 2% and the Hang Seng Index dropping more than 1%. Sector-wise, the "liquor and pharmaceuticals" theme staged a rare rally, with innovative drug stocks in both A-shares and Hong Kong surging against the broader market decline. The food sector, led by baijiu (Chinese liquor), also rebounded. Meanwhile, the technology sector showed mixed performance, with hardware-focused segments like semiconductors and optical modules weakening, while domestic software stocks gained momentum.
In the "liquor and pharmaceuticals" rally, the Hong Kong Stock Connect Innovative Drug ETF (520880), which focuses exclusively on innovative drug R&D, surged 4.84% intraday, attracting over RMB 260 million in net inflows over the past 10 days. Baijiu and consumer staples also rose, with the Food ETF (515710) gaining 1% intraday and drawing RMB 155 million in net inflows over five trading days.
In the software sector, domestic software and AI applications outperformed, with the Xinchuan ETF Fund (562030), heavily weighted in software development, climbing 1.6% against the market trend. The Financial Technology ETF (159851), focused on financial software, edged up 0.56%. Analysts noted that domestic AI applications may be nearing an inflection point, supported by external developments and domestic policy tailwinds, which could further accelerate localization and AI adoption.
In contrast, hardware tech stocks slumped post-earnings, with the ChiNext AI ETF (159363), heavily exposed to optical module leaders, dropping over 3% intraday despite attracting RMB 82 million in net inflows. Semiconductor-related ETFs, including the Technology ETF (515000), Electronic ETF (515260), and STAR & ChiNext Leaders ETF (588330), all fell more than 3.5%, though significant premiums suggested bargain-hunting activity.
Looking ahead, Huabao Fund highlighted that market uncertainty has declined, with liquidity conditions improving globally as the Fed enters a rate-cutting cycle. Domestic policy support for tech industries and increasing long-term capital inflows could pave the way for a "slow bull" market. Household savings may also gradually shift into equities, driven by improving market sentiment.
Huabao Fund recommended three key investment themes amid easing U.S.-China tensions and a return to economic fundamentals: 1. **Innovation-driven demand**: Emerging tech sectors like AI and robotics are at a critical commercialization phase, with opportunities in AI infrastructure, semiconductor equipment, industrial software, and advanced manufacturing. 2. **Valuation premiums for scarce resources**: Commodities are transitioning from cyclical drivers to energy transition and geopolitics, with structural supply-demand imbalances supporting long-term pricing. 3. **Valuation recovery in oversupplied sectors**: Industries like solar and chemicals may benefit from capacity rationalization policies, potentially boosting stock valuations.
### Sector Highlights: 1. **Innovative Drugs**: The Hong Kong Stock Connect Innovative Drug ETF (520880) surged 5.25% intraday, buoyed by policy tailwinds and strong earnings from sector leaders like Innovent Biologics and Hengrui Pharmaceuticals. The ETF has attracted RMB 260 million in inflows over 10 days. 2. **Food & Beverage**: The Food ETF (515710) rose 1%, with baijiu and consumer staples leading gains. Valuations remain historically low, with the sector's P/E ratio at the 3.73% percentile over the past decade. 3. **AI & Optical Modules**: Despite a 3% drop in the ChiNext AI ETF (159363), net inflows totaled RMB 820 million, signaling investor confidence in long-term AI growth. Analysts expect a rebound in optical module demand, with delivery capabilities becoming a key competitive edge by 2026.
**Risks**: Past performance does not guarantee future results. Investors should assess their risk tolerance and investment horizon carefully.
*Data as of October 31, 2025. Source: Stock exchanges.*