The View from Ka: The meeting between Chinese and U.S. leaders provided new policy cues for Hong Kong stocks this week. Chinese President Xi Jinping concluded his visit to the U.S. last week, during which he met with U.S. President Trump. Both sides agreed to offer more favorable tariff treatment on about US$30 billion worth of non-sensitive goods each, and to establish a trade council and an artificial intelligence (AI) dialogue mechanism. The next round of AI dialogue is expected in November. These outcomes help ease market concerns over a renewed escalation of Sino-U.S. trade tensions, potentially improving risk appetite for Hong Kong stocks in the short term. However, fundamental disagreements remain on core issues such as technology, trade, and geopolitics, and the market's ability to further raise valuations will hinge on the follow-through and implementation progress.
Nonetheless, the positive atmosphere from the U.S.-China talks must still contend with challenges from liquidity conditions and rising external interest rates. Hong Kong markets were closed on Thursday (October 1) for National Day, and although trading resumed on Friday (October 2), the Southbound Stock Connect remained suspended until October 7, depriving the market of Northbound liquidity. Around the holiday period, trading activity and risk appetite may turn cautious, while thin liquidity could amplify selling pressure on large-cap stocks and increase index volatility, likely leading Hong Kong stocks to remain in a consolidation phase in the near term.
Furthermore, the external macro environment continues to constrain investors' risk appetite. Last week, the yield on the 10-year U.S. Treasury bond rose as high as 5.23%, closing at around 5.16% last Friday. The 30-year yield rose to 5.53%, a new high since 2004. Interest rate futures indicate about a 70% probability of another rate hike by the U.S. Federal Reserve in October. High risk-free rates increase the discount rate applied to future earnings of tech stocks, putting pressure on valuations of major tech and internet stocks such as Alibaba (09988), NetEase (09999), and JD.com (09618). At the same time, they prompt investors to place greater emphasis on earnings realization and cash flow.
In contrast, biotech and pharmaceutical stocks with commercial revenue, proven R&D results, and strong cash flow are better positioned to absorb capital flowing out from high-beta tech stocks and cyclical stocks. Since the second half of the year, the Hang Seng Innovation & Pharma Index has risen about 12.3%, and the Hang Seng Biotech Index has gained approximately 26%, clearly outperforming the broader Hang Seng Index. This performance has been driven by improved earnings, pipeline progress, policy support, and licensing deals. Continued inflows into the biotech and healthcare sectors are conducive to supporting related stocks.
WuXi AppTec (02359) reported a 38.9% year-on-year increase in revenue to RMB28.9 billion (all figures in RMB unless otherwise stated) in the first half of the year, with adjusted non-IFRS net profit rising 83.2% year-on-year. The company also raised its full-year guidance. Revenue from continuing operations rose 48% year-on-year, and its backlog of orders increased to RMB66.4 billion, reflecting strong revenue visibility from its integrated CRDMO platform. Investors may consider gradually building core positions during market pullbacks.
Innovent Biologics (01801) reported a 45% year-on-year increase in revenue to RMB8.6 billion in the first half, with product revenue rising 57% year-on-year. It recorded an IFRS net profit of approximately RMB1.3 billion, up 50.2% year-on-year. Its commercialization platform has transitioned from a "R&D story" to one of profit expansion, making it suitable for gradually increasing exposure after earnings-related valuation adjustments.
Sino Biopharmaceutical (01177) reported a 10.6% year-on-year increase in revenue to RMB19.4 billion in the first half, with core profit rising 8.1% year-on-year. After excluding non-operating items such as dividend income from Sinovac, its core profit surged 92.3% year-on-year. Revenue from innovative drugs and licensing deals rose 44.3% year-on-year, becoming a key growth driver, making it a suitable choice for a balanced defensive and growth-oriented portfolio.
By Maggie Mak, Head of Research, WFB Securities (Asia)
*The author is a licensed person under the SFC and holds no positions in the aforementioned stocks.
*Articles published in ET with or without bylines are the authors' personal opinions and do not represent the position of ET. ET's role is to provide a free speech platform.
Nonetheless, the positive atmosphere from the U.S.-China talks must still contend with challenges from liquidity conditions and rising external interest rates. Hong Kong markets were closed on Thursday (October 1) for National Day, and although trading resumed on Friday (October 2), the Southbound Stock Connect remained suspended until October 7, depriving the market of Northbound liquidity. Around the holiday period, trading activity and risk appetite may turn cautious, while thin liquidity could amplify selling pressure on large-cap stocks and increase index volatility, likely leading Hong Kong stocks to remain in a consolidation phase in the near term.
Furthermore, the external macro environment continues to constrain investors' risk appetite. Last week, the yield on the 10-year U.S. Treasury bond rose as high as 5.23%, closing at around 5.16% last Friday. The 30-year yield rose to 5.53%, a new high since 2004. Interest rate futures indicate about a 70% probability of another rate hike by the U.S. Federal Reserve in October. High risk-free rates increase the discount rate applied to future earnings of tech stocks, putting pressure on valuations of major tech and internet stocks such as Alibaba (09988), NetEase (09999), and JD.com (09618). At the same time, they prompt investors to place greater emphasis on earnings realization and cash flow.
In contrast, biotech and pharmaceutical stocks with commercial revenue, proven R&D results, and strong cash flow are better positioned to absorb capital flowing out from high-beta tech stocks and cyclical stocks. Since the second half of the year, the Hang Seng Innovation & Pharma Index has risen about 12.3%, and the Hang Seng Biotech Index has gained approximately 26%, clearly outperforming the broader Hang Seng Index. This performance has been driven by improved earnings, pipeline progress, policy support, and licensing deals. Continued inflows into the biotech and healthcare sectors are conducive to supporting related stocks.
WuXi AppTec (02359) reported a 38.9% year-on-year increase in revenue to RMB28.9 billion (all figures in RMB unless otherwise stated) in the first half of the year, with adjusted non-IFRS net profit rising 83.2% year-on-year. The company also raised its full-year guidance. Revenue from continuing operations rose 48% year-on-year, and its backlog of orders increased to RMB66.4 billion, reflecting strong revenue visibility from its integrated CRDMO platform. Investors may consider gradually building core positions during market pullbacks.
Innovent Biologics (01801) reported a 45% year-on-year increase in revenue to RMB8.6 billion in the first half, with product revenue rising 57% year-on-year. It recorded an IFRS net profit of approximately RMB1.3 billion, up 50.2% year-on-year. Its commercialization platform has transitioned from a "R&D story" to one of profit expansion, making it suitable for gradually increasing exposure after earnings-related valuation adjustments.
Sino Biopharmaceutical (01177) reported a 10.6% year-on-year increase in revenue to RMB19.4 billion in the first half, with core profit rising 8.1% year-on-year. After excluding non-operating items such as dividend income from Sinovac, its core profit surged 92.3% year-on-year. Revenue from innovative drugs and licensing deals rose 44.3% year-on-year, becoming a key growth driver, making it a suitable choice for a balanced defensive and growth-oriented portfolio.
By Maggie Mak, Head of Research, WFB Securities (Asia)
*The author is a licensed person under the SFC and holds no positions in the aforementioned stocks.
*Articles published in ET with or without bylines are the authors' personal opinions and do not represent the position of ET. ET's role is to provide a free speech platform.
