From October 1 to 8, the Hang Seng Index declined 0.1%, while the Hang Seng Tech Index rose 0.75%. In terms of sector performance, steel, non-ferrous metals, and pharmaceuticals led gains, while agriculture, forestry, animal husbandry, fishery, real estate, and consumer services sectors led declines. Due to the closure of Stock Connect during the holiday period, the capital driving these performances mainly came from foreign investors and local Hong Kong funds. The Hong Kong stock sentiment index reached above 70 in the "greed zone" on October 2, with the latest reading at 75.2. Historical experience suggests that Hong Kong stocks often experience short-term volatility risk after holiday periods end. However, events and data during the holiday period have not changed but rather reinforced the medium-term market logic: 1) The importance of scarce and certain assets has increased; 2) Demand for cross-asset and cross-regional capital reallocation has further risen; 3) AI narrative has been strengthened again; 4) Experiential consumption has shown outstanding performance.
**1. Under Global Uncertainty, the Importance of Scarce and Certain Assets Increases**
During the holiday period, significant external events including the potential US government shutdown and Japan's conservative Sanae Takaichi potentially becoming Japan's new Prime Minister all point to persistently high global uncertainty. Against this backdrop, global capital demand for assets with scarcity and certainty has increased. This is reflected in two major market changes: first, global gold prices continued to surge significantly above $4,000 per ounce, with Hong Kong's non-ferrous metals sector gaining 5.7% during the holiday, outperforming broad market indices. The price gap between Shanghai gold and global gold prices had been continuously narrowing before the holiday, implying that risk-aversion demand in overseas markets may be rising faster than in domestic markets. Second, safety requirements have increased. After Europe's previous plans to increase defense spending, Takaichi also supports expanding defense expenditure, potentially accelerating global capital expenditure and corresponding growth in capital goods demand.
**2. Demand for Inter-Regional Capital Reallocation Further Increases**
Global funds that were overweight in US dollars at the beginning of the year have begun to diversify or flow back as US "exceptionalism" faces challenges, reflected in the significant depreciation of the US dollar against major global currencies, with the dollar index falling 8.8% year-to-date. Against the backdrop of increased volatility in overseas developed markets recently, capital not only continues to de-dollarize but may also need to diversify toward emerging markets. Since September, developed markets have underperformed emerging markets. During the October holiday period, MSCI Developed Markets rose 0.6%, while MSCI Emerging Markets gained 2.2%. Under the de-dollarization trend, Hong Kong, as one of Asia's three major financial centers and the world's largest offshore RMB center, is positioned to receive substantial "US dollar" reflows that are essentially Chinese capital held in various forms, while providing high liquidity and quality RMB assets. Hong Kong stocks are open to foreign investment, and their correlation with US markets has rapidly declined since 2018 (approximately 12% at the end of September), serving as a core platform for international capital to diversify away from US dollar asset allocation.
**3. Further Strengthening of AI and Technology Narratives**
New models from OpenAI and DeepSeek before and after the holiday have further boosted related capital expenditure expectations. The domestic AI narrative continues to evolve, with China having top-tier companies in many related fields on a globally comparable scale, most of which are listed in Hong Kong. The Hang Seng Tech Index has gained 45% cumulatively this year and nearly 20% since August. The strong rebound in Hong Kong's technology sector reflects AI trends becoming a key trading theme for Hong Kong stocks again. Technology also performed better during the National Day holiday, with electronics surging 3.3%. As noted, technology is expected to lead a new round of Hong Kong asset revaluation. From a medium-term perspective, Hong Kong technology stocks still offer significant allocation value.
**4. Moderate Recovery in Consumer Demand, Outstanding Performance in Experiential Consumption**
According to monitoring data, sales at key national retail and catering enterprises increased 3.3% year-over-year in the first four days of the holiday. E-commerce data shows that before the holiday, carry-on luggage sales volume increased 8.8 times year-over-year, while hiking backpacks, adult luggage, and travel bags saw increases of 4 times, 4 times, and 139% respectively. Local lifestyle platform data indicates that restaurant industry order volumes increased 150% year-over-year. During the holiday, Hong Kong stock sectors including automotive, media, and commercial retail showed excess returns. Looking ahead, as the real estate cycle stabilizes, previously suppressed consumer demand may be released first.
**Risk Warnings**
Risk of overseas economic data falling short of expectations: If key economic data from major developed economies (such as the US) including inflation, employment, and GDP consistently underperform expectations, it may trigger market concerns about global economic recession, potentially impacting markets through sentiment and asset linkage channels, causing actual trends to differ from our views.
Risk of historical statistical patterns failing: If seasonal patterns, valuation fluctuation ranges, or sector rotation models based on historical experience fail, investment strategies relying on such patterns may weaken in effectiveness, potentially causing actual market trends to differ from our views.