Midnight Adjustment: China Dragon Index Dives 6.85%, Chinese ADRs Plunge, Oil & Gold Prices Fall

U.S. stock markets saw a collective rise on October 8th, with investors repurchasing technology stocks and the focus shifting towards the upcoming release of September CPI inflation data and the imminent start of the third-quarter earnings season.

The Dow Jones Industrial Average rose by 0.3%, the Nasdaq Composite increased by 1.45%, and the S&P 500 Index gained 0.97%. Large-cap technology stocks saw widespread gains, with Nvidia surging over 4%, and Apple, Microsoft, Tesla, Meta, and Amazon all rising over 1%. Semiconductors and software applications led the gains, with Broadcom rising over 3%, and Arm and AMD both increasing over 1%.

U.S. Treasury yields continued to climb on the 8th, with the 10-year Treasury yield increasing by 2.5 basis points to 4.051%, approaching 4.057%, close to the levels seen on August 1st.

Since the beginning of October, U.S. stocks have experienced increased volatility due to investor concerns over escalating tensions in the Middle East, with the S&P 500 Index down 1.1% for the month so far. Stronger-than-expected jobs data released last Friday prompted investors to reduce bets on rate cuts, with the market now widely expecting the Federal Reserve to cut rates by 25 basis points in November. According to the CME Group's FedWatch tool, the probability of a rate cut in November stands at 89%.

Advertisement

Federal Reserve Governor Cook stated on Tuesday that she "strongly supports" the decision to cut rates by 50 basis points last month, with the focus remaining on inflation. If inflation eases as expected, she would support further rate cuts. She emphasized that the Federal Reserve should balance the impact on the economy and employment to avoid excessive slowdown.

The commodity market saw a broad decline, with WTI crude oil futures settling down by 4.2% at $73.90 per barrel; Brent crude oil futures settled down by 4.31% at $77.44 per barrel. The global commodity market experienced a widespread decline, with gold falling nearly 1%, spot silver dropping over 3%, and base metals such as copper, zinc, aluminum, nickel, and tin all falling.

Following significant adjustments in the Hong Kong stock market, Chinese概念股 experienced a collective downturn on the evening of October 8th.

The NASDAQ Golden Dragon China Index closed down by 6.85%, marking the largest single-day decline since October 2022.

Jinko Energy fell over 20%, Daqo New Energy dropped approximately 20%, EHang, Dada Group, and Tiger Brokers all fell over 16%, Goto Group and Lufax Holdings both fell over 14%, Bilibili and Weibo fell over 12%, Canadian Solar and Trip.com Group both fell about 10%, and Ke Holdings, Li Auto, and NIO all fell around 8%, while JD.com, Baidu, and XPeng fell over 7%. On the upside, Amer Sports rose over 6%.

It is noteworthy that during the Hong Kong stock trading session on the 8th, the market had already seen significant adjustments, with the Hang Seng Tech Index experiencing a maximum intraday drop of over 14%, and the Hang Seng Index falling over 10% at one point. By the close, the Hang Seng Index was down 9.41%, the Hang Seng Tech Index was down 12.82%, and the Hang Seng China Enterprises Index was down 10.17%.According to Securities Times, in response to the reasons for the adjustments in Hong Kong stocks and Chinese concept stocks on the 8th, analysts believe that the increase in Hong Kong stocks and Chinese concept stocks during the National Day holiday was too large, accumulating a large amount of profit-taking, and some funds cashed out profits, leading to a sharp increase in market volatility.

Looking back at the trading period during the National Day holiday (October 2nd to 7th), the Hang Seng Index rose by 9.3%, standing above 23,000 points, setting a new high since February 2022; the Hang Seng Technology Index rose by 13.4%, and the Hang Seng China Enterprises Index rose by 10.9%; the NASDAQ Golden Dragon China Index rose by 11.4%.

Some analysis suggests that if we look at the cumulative increase in Hong Kong stocks and Chinese concept stocks over the past few weeks, the decline on the 8th is relatively reasonable. After all, the past index showed a more obvious overbought situation in technical indicators, and now it is a partial correction of the overbought indicators.

In addition, with the resumption of the A-share market after the holiday, the scarcity of Hong Kong stocks and Chinese concept stocks disappeared, and due to the large increase during the holiday period, the operation of selling high Hong Kong stocks and Chinese concept stocks and buying A-shares may be more cost-effective for the funds in the market.

Although Chinese concept stocks have been adjusted, the position of foreign institutions to be bullish on Chinese assets in the medium and long term has not wavered.

Goldman Sachs believes that fiscal policy has a more significant impact on China's stock market than monetary policy; with more fiscal stimulus measures likely to be introduced, it is expected that China's stock market will usher in more positive changes.

Goldman Sachs said that the "fear of missing out" (FOMO) psychology prevalent among investors is driving funds into the Chinese market, with both domestic retail investors and foreign institutions showing increased interest in Chinese stocks. Investors should monitor the confirmation of the magnitude and layout of China's fiscal stimulus, profit-taking after the market's sharp rebound, as well as the risks of the US election and tariffs.

Morgan Stanley's Chief Asia Equity Strategist Guo Shengqiang team released a report stating that, in addition to the Hang Seng Index, the basic target for the Hang Seng China Enterprises Index next year has been raised from 6,000 points to 7,950 points, and the most bullish and bearish forecasts for the China Index are 9,700 points and 4,800 points, respectively.

"Put all the money on China because of the policy mix, US interest rate cuts, and attractive valuations." Citigroup China Equity Strategist Pierre Lau said in a report on Monday. He added that China may introduce more economic stimulus measures than the market expects this year.

Currently, Citigroup has raised the target for the Hang Seng Index in Hong Kong by 24%, reaching 26,000 points by mid-2025, and raised the target price for MSCI China by 27% over the same period, to 84 points.In terms of industry allocation, Citigroup maintains an "overweight" rating on internet stocks, upgrades the rating for consumer shares to "overweight," and also raises the rating for real estate stocks to "neutral." However, Citigroup downgrades the ratings for telecommunications and utility stocks to "underweight."