Growing Risk Appetite in Global Markets

As October unfolds, significant movements in economic indicators are sparking renewed interest in various financial marketsThe consumer price index (CPI) in the United States for October surprised analysts by declining more than expected, suggesting a possible shift in the Federal Reserve's interest rate policiesCoupled with optimization of pandemic control measures domestically, investors are keeping a sharp eye on potential rebounds in the U.Sstock market, particularly within the fourth quarter, which may be driven by a recovery in valuationsIn Asia, particularly Hong Kong, tech stocks are also poised for significant rebounds as the economic outlook begins to brighten.

In mainland China's A-share market, favorable conditions include a declining dollar index and supportive real estate policies

Analysts see opportunities in the nonferrous metals sector, which might perform well under these circumstancesMoreover, with increased risk appetite, technology growth stocks could also gain tractionThis sentiment is bolstered by Berkshire Hathaway’s Warren Buffett significantly increasing investments in TSMC, stirring potential momentum in chip manufacturing and related sectors.

The global market sentiment is becoming increasingly optimistic

Data released by the U.SDepartment of Commerce showcases a significant uptick in retail sales for OctoberSpending in essential commodities, vehicles, and big-ticket items surged, revealing a 1.3% increase in retail sales month-over-month, exceeding analyst expectations of 1%. This figure is a notable improvement over the stagnant 0% growth recorded in September

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Additionally, when excluding automobiles and gas, core retail sales experienced a 0.9% increase – marking the highest point since May of this year.

Earlier released data revealed that October's CPI increased by 7.7% compared to the previous year, undercutting market projections while dropping significantly from September's figure of 8.2%. This marks the lowest CPI reading since JanuaryCore CPI, which excludes the volatile food and energy sectors, saw a year-on-year increase of 6.3%, exceeding expectations of 6.5%. On a month-to-month basis, core inflation only rose by 0.3%, a substantial decrease from September's 0.6% increase.

Examining the individual components, core goods saw a month-over-month decline of 0.4%–the first reduction since MarchThe annual growth rate of these goods now stands as the lowest it has been since April of last year, at 5.1%. Meanwhile, core services remain robust, maintaining an impressive yearly growth rate of 6.7%. Housing prices rose by 0.8%, while rent and the equivalent rent for homeowners recorded slower growth rates of 0.7% and 0.6%, respectively.

In light of this data release, market speculation surrounding a 50-basis-point rate increase in December has surged, bringing optimism as signs of easing inflation pressure emerge, leading to a significant rally across A-shares, Hong Kong stocks, and U.S

equities.

However, the end point for rate hikes remains uncertain as further confirmation of downward inflation trends is necessaryCurrently, inflation in the U.Sremains far from the Federal Reserve's long-term target of 2%, necessitating ongoing scrutiny of economic data and the Federal Reserve's future statementsNevertheless, with the apparent inflation peak reached and previous increases in the unemployment rate, expectations for a slower pace in interest rate hikes seem reasonable.

Sectors sensitive to dollar liquidity are expected to perform well

In the U.Sstock market, 2023 has been marked by significant declines due to rising interest rates, with the S&P 500 index halving in value compared to last year's peak

However, improved expectations for dollar liquidity have prompted a considerable rebound in U.Sequities.

Despite the current pressures from inflation and the impact of the pandemic on the economy, the underlying fundamentals of the U.Seconomy remain steady, with growth forecasts for next year hovering around 2%. This positions the U.Seconomy as relatively resilient among the world's major economies, suggesting a cautiously optimistic outlook for indices such as the S&P 500 and Nasdaq 100 next year.

Hong Kong's stock market exhibits a strong connection with mainland economic performance, given the high revenue proportion from mainland companies and increased participation from overseas investorsRecently, the optimization of pandemic-related measures in mainland China has improved the economic outlook significantly, while the easing of overseas interest rate hike expectations may lead to a more vigorous rebound in the Hong Kong market.

Particularly, tech giants such as Tencent and NetEase have reported better-than-expected earnings in their most recent financial disclosures

Notably, a recent article from People’s Daily provided high recognition for the Chinese gaming industry, while the National Press and Publication Administration disclosed approval for 70 domestic online games, including several products from Tencent and NetEase.

Overall, the regulatory landscape for domestic platform economies appears to be returning to normalcyWith solid strategies for controlling costs and expenses, the performance cycle of the internet industry is expected to reach a turning point, indicating significant investment value in Hong Kong's tech stocks.

In A-shares, the retreat of the dollar index serves to boost the prices of nonferrous metals; recent trends show favorable performances in the nonferrous and mining sectorsInternational gold prices, after hitting a low of $1,614 in September, have rallied above $1,760, switching to a trajectory influenced by declining real yields on U.S

debtIndustrial metals like copper and aluminum also benefit from demand recovery, driven by a rebound in real estate policy support amidst optimized pandemic control measuresMeanwhile, energy metals remain under tight supply and demand due to soaring sales of new energy vehicles, offering a positive long-term outlook for the nonferrous metals mining sector.

Additionally, a slowdown in Federal Reserve rate hikes could favor technology growth stocksRecently, sectors focused on chip manufacturing and independent technology have continued to show strong momentum, with rebounds exceeding 20% from their recent lowsBerkshire Hathaway's investment in TSMC has become notable, with the holding value reaching $4.1 billionBuffett's substantial acquisition of TSMC shares reinforces his belief in the chip industry's potential.

Currently, China is advancing its tech sovereignty agenda, which is expected to expand significantly from provincial to county levels and from electronic documentation to e-government