Hong Kong Stock Review: Interest Rates Unchanged, Long-term Bonds Lead
The Federal Reserve kept interest rates unchanged, but long-term bond yields rose, tightening financial conditions. The market sold off cash-burning companies like Microsoft and Meta due to concerns over free cash flow. In the Hong Kong stock market, semiconductors were dragged down by Korea's deleveraging, while tech stocks remained stable and dividend stocks rose. AI momentum stocks are oversold and may reverse, but a new narrative on profitability is needed; interest rates remain a major concern, and expectations may shift pending the midterm elections and policy changes
The Federal Reserve's interest rates remain unchanged, but the 10-year U.S. Treasury yield has risen, which also tightens financial conditions, especially as the market is currently very concerned about financing and free cash flow.
From the after-hours performance of Microsoft and Meta, it can be seen that the market continues to punish money-burning companies. Microsoft's Azure growth is accelerating, and computing power is being snapped up by customers as soon as it goes online, driven by limited capacity rather than insufficient demand. Free cash flow remains positive in 2027, and investments are not out of control, while revenue is accelerating. Of course, aside from the cloud business, other actual businesses lack sufficient growth momentum.
Although Meta's revenue growth rate is good and AI has improved advertising recommendation efficiency, profits have declined due to depreciation, infrastructure, and other costs. Free cash flow has dwindled to just a little, and importantly, the return path is unclear.
Google's cloud also shows an accelerating trend, but it has fallen due to negative free cash flow. It can be said that as long as free cash flow declines, the market will generally sell off. Amazon is about to release its business; AWS's growth rate is not an issue, but free cash flow is likely a disaster. The only thing that can change this is to see when it can stop falling or if CSP cloud businesses collectively raise prices to ease market concerns.
Returning to today's Hong Kong stocks, the pattern from yesterday continues: semiconductors continue to be dragged down by deleveraging in South Korea, tech stocks are relatively stable, and dividend stocks have further risen. In the short term, AI momentum stocks have been severely hit and are extremely oversold, with the possibility of a major reversal at any time.
However, for a rebound to turn into a reversal, a new narrative is needed—not "insufficient computing power," but "applications are starting to make money." On the other hand, interest rates continue to be a concern.
Regarding the latter, as previously mentioned, there may be a federal put or an approaching mid-term election, which could lead to a real shift in expectations
