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the hang seng index ushered in a long-awaited "major adjustment" on thursday, closing down 1.47% and rising 2.82% on friday, setting a new high since the current market.

in response to the huge shock in hong kong stocks on thursday, goldman sachs believes that the situation in the market is that sometimes they will rise and sometimes they will fall. hong kong stocks have rallied since the policy-driven rally beganfirst callback, some healthy profit-taking began to appear, but the resilience was obvious. the hang seng index fell 1.5% on thursday, once falling 4.5% during the session, and then quickly pared its losses. the state-owned enterprise index fell 1.6%, ending a 13-day rising trend.but the narrative hasn’t changed;

gs: our trading desk shared the news that there is no panic in china markets in hong kong today…

hong kong close: hong kong's index fell 1.47%, its first decline in six days. since september 13, the market has gained approximately 27%.

hong kong trading volume: hong kong’s transaction volume is still considerable, with a transaction value of nearly hk$310 billion. although down 38% from monday's record high, today's trading volume is still nearly 2.9 times the hang seng index's annual average trading volume.

thematic investment basket: for much of the past week, we've seen gains in every thematic investment basket. however, there was a reversal today, with all thematic sectors posting losses. the largest retracement occurred in china's h-share real estate, which fell by -9.58%; macau fell by -4.38%; and china's consumption fell by -3.66%.

goldman sachs volume - fund flow: goldman sachs’ trading volume is 2.14 times its recent four-week run rate. similar to overall exchange volume, our volumes, while down, are still significantly higher than prior levels. today we see hedge funds and long-term investors acting as sellers in the market, with sales ranging from 1.35x-1.78x. similar to earlier in the week, the majority of our flows were focused on large-cap technology and financial stocks.

short situation: after rising 56% since september 13, the most heavily shorted basket (gshktpsh) fell 6.57% today. it is worth noting that overall, our goldman sachs priority short account has been net covered in hong kong on a weekly and monthly basis, and the total short volume has decreased by 2.7% and 4.6% respectively.

overall, the market had a slight correction today, falling more than 3% in early trading, and finally closed down 1.47%. while it's clear that momentum has waned slightly, engagement, calls, questions, and deals are still well above our recent run levels. market sentiment remains positive and the general consensus is that a pullback and consolidation could be a good development heading into the weekend. however, investors are still keeping a close eye on any new news from china over the weekend and when trading resumes next tuesday.

recently, there has been a strong atmosphere for foreign investors to be long in china. we have summarized the situation of some foreign investment banks for reference.

GS：the trading volume of the trading desk increased by 148% compared with the average of the past three weeks, and the number of clients operating increased by 41% (a large number of accounts that had not previously paid attention to/trading in china added positions), and the inflow scale reached a record high (a shares 1.5 billion us dollars, hong kong stocks 429 million us dollars) us dollars) and mainly focus on long buying. structurally, foreign capital mainly buys finance, consumer necessities and industry, with a net outflow of public utilities. in terms of rhythm, foreign capital is relatively "calm" in the early stage. however, after the zzj meeting on thursday, fomo drove hf to significantly increase its positions in liquor, new energy and internet leaders. in terms of chinese concept stocks, the new york trading desk showed that it was not until after the zzj meeting on thursday that all types of foreign capital (lo, hf, retail investors) began to quickly chase higher.

UBS：trading volume on the trading desk increased by 350% month-on-month. last week we saw a large amount of passive funds flowing into hong kong internet stocks (tencent and alibaba), while active funds bought alibaba slightly. hf is mainly short cover, so there has been a large inflow into liquor (interestingly, quantitative hf is short covering moutai, while fundamental hf continues to short moutai), photovoltaics and new energy vehicles (lideal and nio). in addition, hf also buys it invests in financial services, technology hardware & equipment, banking, biomedicine & science, and automobiles and parts, and mainly sells semiconductors and equipment, capital goods, and energy. in terms of chinese concept stocks, some funds on the us desk started short cover on tuesday, and after the politburo meeting on thursday, lo started buying. in terms of derivatives, although most foreign investors are long on index futures such as the hang seng index and msci china, it is worth noting that last friday some foreign investors began to realize their gains on derivatives such as a50 futures and began to increase hedging of downside risks ( buy put options on fxi next january and kweb this november).

JPM：hf's net purchases of a-shares last week hit the highest level in the past seven years, and they were mainly long buying. structurally, retail, consumption and real estate received more net purchases.

MS：long buying and short cover are both of similar size, and together they drive capital back into china. among them, a-shares and chinese concept stocks are the main areas of inflow, while hong kong stocks were net selling last week. structurally, consumption necessities, industry and finance saw large inflows, while the energy sector suffered outflows.

comments on chen guo’s surge in hong kong stocks：“with the world，revaluation of chinese assets”

1. the rapid rise in hong kong stocks in the short term has shocked global funds, but in our opinion it is reasonable., today, with such a rise, we still believe that the bull market in hong kong stocks is not over. the current bull market in hong kong stocks is based on its continued bearish trend since 2021. even now, the valuation of hong kong stocks is still at a global low. the essence of the recent hong kong stock market and the a-share market is that the chinese stock market is a "confidence revaluation bull". strategically, we continue to be firmly optimistic about the chinese stock market, including hong kong stocks.

the core background is that last week's important meeting made it clear that policymakers are fully committed to revitalizing the economy, aiming to reverse deflation, and attach great importance to asset prices, with the goal of reversing expectations of balance sheet recession. i think the biggest misjudgment of global funds is that china will copy japan in the 1990s. in fact, japan's handling of the debt cycle has been better than that of the united states in 1929 in many ways, and the eurozone in 2012 handled it better based on japan's experience and lessons. i think there is reason to think that china's handling of the debt cycle is better based on europe's experience. the processing and effects will be even better. the perception of foreign capital has just begun to change, and the current process of foreign capital's allocation to hong kong stocks has just spread from hedge funds to long-term long allocation funds. therefore, based on our communication, it is estimated that the current overall allocation ratio of foreign capital to the chinese stock market is still significantly low. it is still a trend to look for opportunities to replenish supplies.

2. the difference between hong kong stocks and a-shares is that some foreign investors previously misjudged that hong kong would become the site of asia’s financial center.the risk-free interest rate of hong kong stocks is more affected by the fed's interest rate cut cycle, and the valuation discount level of hong kong stocks relative to a shares is still above the historical average., and when foreign capital supplements the chinese stock market, hong kong stocks are an important or even priority choice for many value investment foreign capital.

3. generally speaking, the performance of the hong kong stock market also confirms our judgment. the current "confidence revaluation bull" in the chinese stock market is different from the may 19 market in 1999, or the "buffalo" market in 2014-15. the core characteristics of this time are :we are revaluing china with global funds。

4. in terms of tactics, it is well known that hong kong stocks are currently rising at an extremely fast rate, and profit-making orders and potential selling pressure are also rapidly accumulating. in addition, since a-shares are not currently open, foreign capital, including the original potential mainland china stock connect capital replenishment, will be more focused on the chinese stock market. in hong kong stocks, there is also a game mentality of worrying about funds going south after the holiday to cash in hong kong stock profits and part of the funds in hong kong stocks cashing out in preparation for switching to a-shares after the holiday. in addition, short selling of hong kong stocks is more popular, soit is not difficult to imagine that there will be certain fluctuations in the short term in the future.. on the other hand, if us stocks fall significantly, the trend of hong kong stocks may be more likely to be affected.

china galaxy yang chao: recommended to invest in hong kong stocks

yang chao, chief strategy analyst at china galaxy securities, said: hong kong stocks and a-shares have similarities and differences. hong kong stocks and a-shares basically share the same fundamentals and macroeconomics, because hong kong and the mainland are now linked. it's very in place, and our entire interconnection measures are also very in place. but if we look at hong kong stocks alone, hong kong's advantages as an international center are still very obvious. whether it is recommending to patient capital, long-term funds, or to investor friends such as public funds and private equity institutions, i will also recommend investments in hong kong stocks.