China Galaxy Securities: With the upcoming change in leadership at the Federal Reserve, is Hong Kong's technology sector even more promising?

China Galaxy Securities released a research report stating that the market had been trading based on the expectation that the new Federal Reserve Chairman, Kevin Wash, may lean towards a dovish stance. However, this week's reality has shattered this expectation. Wash has not been formally sworn in yet, but the bond market has seen yields rising, with the market preempting "rate hikes" and tightening financial conditions prematurely. Vincent Ahn characterized this as a "modern version of the bond vigilantes." However, there is also the possibility of the market preempting expectations of dovishness, and the second half of the year (July-August) is seen as a key observation window. The firm pointed out that investment strategies should focus on three main themes: the technology sector; high dividend/asset yields (defensive positions); and the innovative pharmaceutical sector. Key points from China Galaxy Securities include: Hong Kong stock market performance: During the week of May 11th to May 15th, other than the ChiNext Index, the Thailand SET Index, the Ho Chi Minh Index, and the S&P 500, major global broad-based indices showed a downward trend. The three major Hong Kong indices all showed a downward trend, with the Hang Seng Index falling by 1.63%, the Hang Seng Tech Index falling by 3.17%, and the Hang Seng H-Share Index ETF falling by 2.23%. Among the primary industries in the Hong Kong stock market, two industries saw gains while nine industries saw losses during the week. Specifically, utilities rose by 0.49%, energy rose by 0.18%, materials fell by 8.59%, healthcare fell by 4.23%, consumer staples fell by 3.42%, and consumer discretionary fell by 1.39%. Looking at secondary industries, semiconductors, household appliances II, and electrical equipment saw the highest increases, while non-ferrous metals, household products, and durable consumer goods saw the largest declines. Hong Kong stock market liquidity: The average daily trading volume on the Hong Kong Stock Exchange this week was 202.35 billion Hong Kong dollars, an increase of 52.988 billion Hong Kong dollars compared to the previous week. The average daily short selling amount this week was 32.028 billion Hong Kong dollars, an increase of 3.89 billion Hong Kong dollars compared to the previous week, with the short selling amount accounting for an average daily value of 10.99% of the trading volume, a decrease of 2.78 percentage points compared to the previous week. In terms of southbound funds, there was a cumulative net inflow of 9.333 billion Hong Kong dollars this week, an increase of 9.526 billion Hong Kong dollars compared to the previous week. As of May 13th, in the past seven days, global active foreign funds had a net outflow of 419 million US dollars from Hong Kong stocks, while global passive foreign funds had a net inflow of 939 million US dollars, a decrease of 461 million US dollars and an increase of 1.316 billion US dollars respectively compared to the previous week. Hong Kong stock market valuation and risk appetite: As of May 15, 2026, the price-earnings ratio (PE) and price-to-book ratio (PB) of the Hang Seng Index were 12.31 times and 1.23 times, respectively, placing them at the 80th and 56th percentiles since 2010. As of May 15, 2026, the 10-year US Treasury bond yield increased by 21 basis points to 4.59% compared to the previous week, with the risk premium of the Hang Seng Index at 3.54%, equal to the three-year rolling average minus 1.70 times standard deviation, placing it at the 2nd percentile since 2010. As the Federal Reserve transitions, is Hong Kong's technology sector more worth looking forward to? Previously, the market had been trading based on the expectation that the new Federal Reserve Chairman, Kevin Wash, may lean towards a dovish stance. However, this week's reality has shattered this expectation. Wash has not been formally sworn in yet, but the bond market has seen yields rising, with the market preempting "rate hikes" and tightening financial conditions prematurely. Vincent Ahn characterized this as a "modern version of the bond vigilantes." In the face of objective realities such as high inflation data, even if Wash intends to push for rate cuts, it may be difficult for him to garner support within the hawkish-leaning Federal Reserve. Additionally, former Chairman Powell made a hawkish-leaning statement before stepping down, causing market expectations for rate cuts this year to fall. However, there is also the possibility of the market preempting expectations of dovishness, and the second half of the year (July-August) is seen as a key observation window. Investment strategies should focus on three main themes: (1) the technology sector. The technology industry has high certainty in trending, serving as the core drive of this round of the market. There is visible directional price-to-value ratio after a short-term pullback. Storage chips are entering a super cycle due to the explosion in AI demand, with a clear upward price trend. Additionally, the power equipment sector benefits from domestic power grid investments and overseas market expansion, with a focus on semiconductors/hardware equipment, storage chips, and power equipment. (2) High dividend/asset yields (defensive positions). The rise in China's April PPI data bodes well for the profit expectations of sectors such as energy and raw materials, with a focus on utilities and communication services. (3) The innovative pharmaceutical sector. The upcoming ASCO conference, a globally renowned oncology event, serves as an important catalyst for stock prices in the pharmaceutical sector. Risk warnings: Risks include domestic policy measures and their effectiveness falling short of expectations, unexpected foreign interest rate cuts, and unstable market sentiment.