The Hang Seng index moved to a correction phase this week, falling by over 11% from its highest point this year. It was trading at H$20.440, much lower than the year-to-date high of H$23,230. 

Other Chinese indices have slipped this week. The closely-watched CSI 100 index has plunged to CNY 3,675, down by over 14% from its highest point this year. Similarly, the China A50 and Shanghai Composite indices have retreated by over 10%.

China stimulus hopes fade

The Hang Seng, CSI 100, and other Chinese indices continued soaring in September after Beijing started talking about stimulus packages.

In the past few weeks, the government and the central bank have announced a series of policy measures to reboot an ailing economy. 

For example, data released on Sunday showed that China’s Consumer Price Index (CPI) retreated from 0.4% in August to 0.0% in September. The figure also retreated from 0.6% to 0.45 in September.

Most importantly, another report showed that the producer price index (PPI) crashed by 2.8% in September after falling by 1.8% in the previous month. The decline was lower than the median estimate of 2.5%.

These numbers mean that the Chinese economy is going through a period of deflation, which can be risky for an economy. While low prices are preferred, they could hurt the economy by lowering spending as consumers wait for them to fall further. 

Another report released on Monday showed that the country’s trade numbers remained on edge in September. Exports rose by 2.4% in September after rising by 8.7% in the previous month. This increase was lower than the median estimate of 6.0%.

Imports rose by just 0.3% in September, missing the analyst estimate of 0.9%. As a result, the total trade surplus narrowed to over $81.7 billion last month.

Therefore, the recent stimulus measures make sense if the government wants to achieve its 5% growth target. In a note this week, analysts at Goldman Sachs boosted their estimate for China’s GDP data from 4.7% to 4.9%.

The next key catalyst for the Hang Seng and CSI 100 index will be a statement by the housing ministry on more stimulus measures. This explains why housing stocks were among the top Hang Seng index gainers. China Resources Land, Longfor Properties, and Henderson Land shares jumped by over 4%.

Read more: China’s CSI 300 Index faces volatility as investor concern over stimulus grows

Profit-taking continues

Therefore, the Hang Seng and other Chinese indices are dropping because of profit-taking as the recent rally takes a breather. 

In most periods, an asset in a strong parabolic move pulls back or stalls after making a big parabolic move as investors start taking profit. 

The retreat is also happening as investors watch how the recently announced tariffs, which will cost billions of dollars evolve.

A key concern among many investors is that the real estate sector needs more money than what has been offered by the government.

While the number is not yet clear, it is estimated that China has over 48 million unbuilt homes, which have already been sold, and whose companies are struggling. Some of the most notable developers that have collapsed are Evergrande and Country Garden. 

Read more: As Evergrande faces liquidation, is Country Garden next?

CSI 100 index analysis

CSI 100 index chart by TradingView

The daily chart shows that the CSI 100 index bottomed at CNY 2,940 earlier this year and then soared to CNY 4,281 earlier this month. Its highest point this month was also the highest point in July 2022.

The index has now erased some of those gains and dropped below the 50% Fibonacci Retracement point. 

Most notably, it has formed a golden cross as the 200-day and 50-day Exponential Moving Averages (EMA). 

Therefore, there is a high likelihood that the index, which tracks the biggest companies listed in Shanghai and Shenzhen, will bounce back. If this happens, it will rise and retest the year-to-date high of CNY 4,281, which is about 17% above the current level.

Hang Seng index forecast

Hang Seng index chart by TradingView

The daily chart shows that the Hang Seng index peaked at H$ 23,230 on October 7, and has pulled back to H$ 20,420. 

Like the CSI 100 index, it has also formed a golden cross pattern. The RSI and the MACD indicators have tilted downwards, meaning that the drop is part of the profit-taking process. 

Therefore, the index seems to be eying the key support at H$19,710, its highest swing on May 20th. This is a break-and-retest pattern, where an asset breaks a key level, retests it, and then resumes the initial trend.

If this happens, the Hang Seng index will rebound and retest the year-to-date high of H$23,230, which is about 13.3% above the current level.

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Investors in the semiconductor sector are facing renewed uncertainty following a sobering outlook from ASML Holding NV, one of the world’s leading chip equipment manufacturers.

The Dutch company’s revised forecast triggered a sharp decline in global chip stocks, with combined losses exceeding $420 billion across US-traded chipmakers and leading Asian semiconductor companies.

ASML slashes sales forecast for 2025

ASML, known for producing the most advanced chipmaking equipment, cut its 2025 net sales outlook, citing sluggish demand outside of artificial intelligence (AI) sectors.

The company reduced its upper guidance range for 2025 net sales to €35 billion ($38 billion), down from €40 billion.

The revision came as a surprise to many investors, particularly in light of the recent rebound in semiconductor stocks fueled by strong AI demand and Nvidia Corp.’s latest product performance.

ASML’s shares plummeted by as much as 1998 in European trading following the announcement, marking one of its sharpest declines in decades.

The ripple effect of ASML’s revised forecast was felt across the semiconductor industry, with Tokyo Electron Ltd. falling by as much as 10% in Asian markets, and Taiwan Semiconductor Manufacturing Co. (TSMC) losing 3.3% ahead of its earnings report.

Mixed reactions from investors

While ASML’s weak 2025 forecast was partly anticipated due to softness in non-AI sectors and reduced spending from companies like Intel Corp., the scale of the downward revision took analysts by surprise.

Citigroup analyst Atif Malik highlighted the “magnitude of the correction” as an unexpected negative factor for investors.

Despite the steep market reaction, some analysts remain cautiously optimistic, pointing out that ASML’s challenges may be specific to the company.

Jung In Yun, CEO of Fibonacci Asset Management Global Pte., believes the drop in ASML’s earnings may be due to strategic order reductions by key chipmakers, though the underlying reasons remain unclear.

He also noted that ongoing economic stimulus efforts by China could potentially boost chip demand and help revive the market.

AI demand remains strong despite broader chip concerns

Although the semiconductor industry has faced headwinds in areas outside AI, demand for AI-driven technologies continues to support key chipmakers like Nvidia.

The company recently reached a new record stock price following positive developments in its AI product line, which has helped to offset some of the broader industry concerns.

Nvidia and other AI-focused chipmakers are expected to maintain solid growth in the near term, even as other segments experience slower demand.

Challenges ahead for chipmakers

The broader semiconductor industry, however, remains vulnerable to economic shifts and fluctuating demand across various sectors.

Slowing demand in non-AI applications, coupled with reduced capital expenditures from some of the industry’s largest players, is likely to pose ongoing challenges for manufacturers like ASML.

The focus now turns to Taiwan Semiconductor Manufacturing Co.’s earnings report, which could provide further insights into the health of the chip market.

Despite these challenges, many analysts believe the semiconductor industry’s long-term growth prospects remain intact, particularly as AI applications and digital transformation efforts drive demand for cutting-edge technology.

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Horizon Robotics, a prominent player in the realm of autonomous driving technology, has announced its intention to secure up to $696 million through an initial public offering (IPO) in Hong Kong.

This move comes as the city’s capital markets begin to exhibit signs of revitalization following a prolonged period of inactivity lasting nearly two years.

According to the company’s regulatory filings, Horizon Robotics plans to offer 1.36 billion shares, with pricing set between HK$3.73 and HK$3.99 ($0.51) each.

Should this IPO succeed, it will represent the largest public listing in Hong Kong for 2024, surpassing the anticipated $650 million IPO from China Resources Beverage, which commenced its book-building process earlier this week.

Prior to these developments, the Hong Kong IPO market had experienced a significant downturn, reaching multi-year lows as Chinese regulators maintained a tight grip on approvals for mainland companies seeking to raise funds outside of China.

In a positive sign for Horizon Robotics, cornerstone investors have already committed to purchasing $219.8 million worth of shares.

Notable contributions include bids of $50 million each from Alisoft China and Baidu, underscoring strong interest from major players in the technology sector.

Specializing in the production of advanced driver assistance systems and autonomous driving solutions, Horizon Robotics caters to the growing demand for innovative passenger vehicle technology within China.

The company also counts Volkswagen among its stakeholders.

The IPO process is set to finalize its share pricing on October 21, with trading expected to commence on the Hong Kong Stock Exchange on October 24.

In its filings, Horizon Robotics detailed plans to allocate 70% of the funds raised toward research and development over the next five years, while an additional 10% will be directed to sales and marketing initiatives.

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Chinese stocks experienced early fluctuations and dipped as investors grow increasingly impatient with the pace of stimulus measures from the central government.

The CSI 300 Index, which tracks the largest companies listed in Shanghai and Shenzhen, was down 0.2% by midday after initially plunging as much as 1.3% during morning trading.

This recent decline marks a total fall of over 10% since reaching a peak on October 8. Meanwhile, Chinese shares listed in Hong Kong managed a modest rebound, with the Hang Seng Index rising 0.7%.

Roller-coaster market driven by stimulus optimism fades

The market’s recent fluctuations highlight the volatility in Chinese equities since late September, when a wave of central bank stimulus measures briefly ignited optimism among investors.

However, that initial enthusiasm has now quickly cooled, as Beijing has yet to provide further details on its fiscal spending plans.

This uncertainty is fostering doubt about whether Chinese authorities are prepared to deploy more aggressive measures to stabilize the economy and support stock markets.

“The historic surge in momentum at the end of September was, of course, unsustainable,” said Marvin Chen, strategist at Bloomberg Intelligence.

Given how fast markets rose, they can fall just as quickly. But overall policy actions are moving in the right direction, and when the dust settles, China equities may still trade in a higher range than before.”

Although a 10% decline might typically signal a technical correction for the CSI 300 Index, the extreme volatility in Chinese markets lately has diminished the significance of such milestones.

After soaring more than 30% over three weeks from mid-September, the index has now lost momentum, reflecting investors’ mixed sentiments about whether the rally has peaked or if further gains are still possible.

Fund manager survey shows divided outlook for Chinese stocks

A recent survey conducted by BofA Securities between October 4 and 10 found that fund managers remain divided over the prospects for Chinese offshore stocks.

Half of the respondents forecast a 10% upside potential for the next six months, while 33% anticipated gains of 10% to 20%.

Nearly a third of the respondents reported increasing their exposure to the market amid signs of easing, a significant increase from just 8% in the previous month.

However, despite this optimism, three-quarters of the fund managers surveyed believe the market is undergoing a “structural de-rating,” a sign of underlying concerns about long-term growth prospects.

Property sector becomes key focus amid economic uncertainty

All eyes are now on an upcoming press briefing by China’s Housing Minister Ni Hong, set for Thursday, where the government is expected to unveil further measures to support the struggling property sector and boost economic growth.

Investors are keen to see how the government plans to address the challenges facing the real estate industry, which has been one of the main drivers of China’s economic slowdown.

Ahead of the briefing, Chinese property stocks saw a strong rally, with a Bloomberg Intelligence index of developer shares surging as much as 8.3%.

However, this optimism may prove short-lived if the announcements fall short of investor expectations.

Vey-Sern Ling, managing director at Union Bancaire Privee, urged caution, stating that recent press briefings by senior economic officials have been underwhelming.

“The last two pressers by the National Development and Reform Commission and the Ministry of Finance have been disappointing, so there should be no reason to lift hopes for the briefing tomorrow,” Ling said.

Impact on commodities and broader markets

Beyond the stock market, China’s slowdown has also weighed heavily on commodities, with iron ore futures reflecting the uncertainty in the country’s industrial sector.

Iron ore, a key component in steel production, traded just below $106 a ton in Singapore after swinging between gains and losses throughout the trading day.

The steel-making staple has been hit hard by reduced demand from Chinese mills, which have scaled back production due to the country’s weaker economic performance.

As Chinese markets continue to navigate volatility and uncertainty, investors are closely watching Beijing’s next moves, particularly in regard to the property sector.

The government’s ability to implement effective stimulus measures will be crucial in determining whether markets can regain their footing or face further declines.

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In a groundbreaking initiative, Google is set to enhance its energy portfolio by collaborating with Kairos Power to develop seven small nuclear reactors across the United States.

This partnership marks a significant milestone as the first of its kind in the tech industry.

The inaugural reactor is anticipated to be operational by 2030, with additional units expected to come online by 2035.

Collectively, this project aims to supply 500 megawatts of power, sufficient to energize a midsize city, specifically to support the company’s AI technologies.

In a recent blog post, Google emphasized the benefits of nuclear energy, stating:

Nuclear solutions offer a clean, round-the-clock power source that can help us reliably meet electricity demands with carbon-free energy every hour of every day.

The tech giant expressed its commitment to advancing these power sources in collaboration with local communities to facilitate the global decarbonization of electricity grids.

Kairos Power, a startup focused on nuclear energy, is developing these smaller reactors, which differ significantly from the traditional large nuclear towers commonly associated with nuclear power.

The company’s innovative design utilizes a molten salt cooling system, allowing operations at lower pressure levels.

Earlier this year, Kairos Power began construction on a demonstration reactor in Tennessee, which will initially be unpowered.

Details regarding the financial aspects of the partnership, including the overall cost, remain undisclosed, and specific project sites have yet to be identified.

This announcement follows closely on the heels of Microsoft’s recent collaboration with Constellation Energy, which aims to reactivate an undamaged reactor at the Three Mile Island facility—historically known for the worst nuclear accident in US history—to supply power for Microsoft’s AI data centers.

As per report by Reuters, experts have raised concerns about the potential strain on the US power grid due to the increasing energy demands of data centers.

A recent nine-year growth forecast for North America suggests a doubling of energy requirements compared to the previous year.

Last year, Grid Strategies projected a growth rate of 2.6% over five years, a figure that has since surged to 4.7%. This surge implies a projected peak demand increase of 38 gigawatts, enough to power approximately 12.7 million homes.

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