Market Review: Hang Seng Index falls 2%, Alibaba and Baidu under pressure, LINK REIT drops over 7%

U.S. stocks initially rose before a sharp decline, while Hong Kong stocks fell today. The U.S. reported an increase of 119,000 non-farm jobs in September, exceeding market expectations, which has led to market attention on the Federal Reserve's future interest rate cuts. NVIDIA (NVDA.US) saw its stock price rise before falling over 3% after announcing its quarterly results. The Dow Jones Industrial Average fell 0.8% and the Nasdaq dropped 2.2%. At the time of writing, the yield on U.S. 2-year bonds fell to 3.537%, the yield on U.S. 10-year bonds dropped to 4.084%, and the U.S. dollar index fell to 100. The Federal Reserve's meeting minutes from last month showed that several officials supported not cutting rates further this year, while Chicago Fed President Goolsbee reiterated concerns about further rate cuts. Dow futures rose 196 points or 0.4%, and Nasdaq futures increased by 64 points or 0.27%. The Shanghai Composite Index fell 96 points or 2.45% to close at 3,834 points, the Shenzhen Component Index dropped 3.4%, and the ChiNext Index fell 4%, with a total trading volume of 1.97 trillion yuan in the two markets.

The Hang Seng Index opened 375 points lower and the decline widened, dropping as much as 656 points to a low of 25,178 points, closing down 615 points or 2.4% at 25,220 points; the Hang Seng China Enterprises Index fell 223 points or 2.4% to close at 8,919 points; the Hang Seng Tech Index dropped 179 points or 3.2% to close at 5,395 points. The total trading volume for the day was 285.702 billion yuan. The northbound trading total was 118.147 billion yuan, while southbound funds saw a net inflow of 10.5 million yuan today (with a net inflow of 15.992 billion yuan on the previous trading day).

The Hang Seng Index has fallen a total of 1,352 points or 5.1% this week, the Hang Seng China Enterprises Index has dropped 478 points or 5.1% this week, and the Hang Seng Tech Index has decreased by 417 points or 7.2%. Southbound funds have seen a net inflow of 38.602 billion yuan this week (with a net inflow of 24.773 billion yuan last week). The market is concerned about the U.S. AI stock bubble theory and is awaiting the U.S. employment data to be released this week. According to the FedWatch tool from the Chicago Mercantile Exchange (CME), the probability of a rate cut in December is 33.1% (down from 44.4% a week ago and 98.1% a month ago).

【Northbound inflow decreases, AI stocks under pressure】

AI concept stocks faced pressure today. Alibaba (09988.HK) fell 4.7% to close at 147.6 yuan, with a trading volume of 20.98 billion yuan; Baidu (09888.HK) dropped 5.8% to close at 107.3 yuan, with a trading volume of 2.44 billion yuan; Meitu (01357.HK) and GDS Holdings (09698.HK) fell 4.9% and 4.2%, respectively. In the chip sector, SMIC (00981.HK) and Hua Hong Semiconductor (01347.HK) each fell over 6%, while chip equipment stock ASMPT (00522.HK) dropped 6.1%.

Haitong International published a research report, giving Alibaba an "Outperform" rating for the first time, stating that the group is a global leader in technology and business platforms, covering e-commerce, cloud computing, digital media, and international trade. Although revenue growth is expected to slow from 2024, the performance in the fiscal year 2025 reflects that the group's development strategy is being readjusted Focusing on e-commerce and cloud business as the two core businesses, the organizational structure has been streamlined from the "1+6+N" framework to four categories: China e-commerce, international digital commerce, cloud intelligence, and other businesses. The bank has set a target price of HKD 200 for Alibaba's Hong Kong shares, anticipating that Alibaba is entering a recovery phase led by AI, with overall revenue growth expected to accelerate again. Haitong International pointed out that the huge subsidies for takeaway and flash purchase businesses may pose significant pressure on Alibaba's profitability in the fiscal year 2026, expecting profit margins to rebound from the second half of fiscal year 2026 and return to normal levels of approximately 17% net profit margin and 17% EBITA profit margin in fiscal year 2027.

【Stocks Down by 1,700, Link REIT Falls Again】

The Hong Kong stock market continues to weaken, with a rise-to-fall ratio of main board stocks at 9 to 43 (compared to 23 to 25 the previous day), with 1,771 stocks declining (a drop of 3.6%). Today, among the Hang Seng Index constituent stocks, 4 stocks rose while 83 stocks fell, with a rise-to-fall ratio of 5 to 94 (compared to 63 to 35 the previous day). The market recorded short selling of HKD 47.183 billion, accounting for 18.395% of the total turnover of shortable stocks at HKD 256.505 billion.

The Macau government expects next year's gambling revenue to be MOP 236 billion, with gaming stocks such as Galaxy Entertainment (00027.HK) dropping 4% throughout the day, while Melco International (00200.HK), MGM China (02282.HK), Sands China (01928.HK), and Wynn Macau (01128.HK) fell by 5.5% to 6%.

Link REIT (00823.HK) fell nearly 7.5% today, closing at HKD 35.9. JP Morgan released a report stating that Link REIT's management was more cautious than expected during the mid-term earnings conference at the end of September, stating that "the operating environment in the second half will slightly worsen before bottoming out." Although the bank originally expected a mid-single-digit percentage negative growth in renewal rents for the entire fiscal year, it now anticipates that the decline in renewal rents in the second half of fiscal year 2026 will worsen to a high single-digit percentage, mainly due to the unexpected weakening of sales for Link REIT's Hong Kong tenants from July to September 2025, estimating a year-on-year decline of 3%, underperforming the year-on-year increase of 3% in Hong Kong's essential consumer goods retail sales. The report indicated that after a year-on-year decline of 6% in the distribution per unit (DPU) for the first half of fiscal year 2026, the DPU for the entire fiscal year 2026 is expected to decrease by 8% year-on-year, implying a year-on-year drop of 10% in DPU for the second half of fiscal year 2026, partly due to a higher comparative base.

As the decline in renewal rents is likely to continue to drag down rental income in fiscal year 2027, JP Morgan has lowered its forecast for Link REIT's DPU per fund unit in fiscal year 2027 to a year-on-year decline of 3%. The bank downgraded Link REIT's rating from "Overweight" to "Neutral," but believes that the downside potential of the stock price may be supported by a forecasted dividend yield of 6.3% for fiscal year 2027. The target price was reduced from HKD 48 to HKD 38