In the week following the holiday, bearish news dominated, but the final day managed to hold steady. A window of opportunity has emerged between the US and Iran, with US President Trump publicly stating that the US will not attack Iran before the November 3 midterm elections. However, tensions are rising in the Bab-el-Mandeb Strait direction, where an attack on Riyadh airport in Saudi Arabia killed 12 people and injured 309, and Trump indicated the US might join strikes against Houthi forces, so watch for any subsequent escalation. On a positive note, the US and Russia have reached an agreement under which Russia will immediately supply over 300,000 tons of diesel to the US and global markets, increasing to 500,000 tons in November and 1 million tons in December, aimed at lowering oil prices and curbing inflation. The IMF and World Bank annual meetings begin this week, with global growth, inflation, interest rates, and government debt as core topics; the IMF will release its World Economic Outlook and Global Financial Stability Report, alongside the G20 finance ministers and central bank governors meeting. Pay close attention to speeches from US officials. The second meeting of the China-EU trade and investment consultation mechanism issued a joint statement, with both sides reaching an understanding on hybrid vehicle trade. However, the ultimate focus will be on the October 15-16 European Council meeting, which may discuss the EU's trade stance toward China. This is the highlight of the week and will significantly impact the auto industry. Domestic positive factors are worth anticipating: on Saturday, Wu Qing held a symposium emphasizing the need to build the capital market and better reward investors, and mentioned studying and reserving more incremental policy tools. The Ministry of Finance arranged to use 550 billion yuan of local government debt balance limits. The Hang Seng Index is prone to rebounds at low levels.

In terms of hot topics, WeChat officially launched a free short drama mini-program called Green Bubble, which multiple media outlets say is aimed at competing with Hongguo. PineDrama downloads surpassed 100 million, as ByteDance seeks to recreate a Hongguo overseas. This is expected to stimulate the short drama industry chain. A measles outbreak has erupted in the US, with confirmed cases at the highest annual level since 1991. The Hulunbuir Center for Disease Control issued a plague prevention and control risk notice. Related vaccine stocks may see some movement. A director from the World Food Programme said that El Nino combined with the impact of war is creating a "slow-burning" food crisis. If the market corrects, agricultural stocks will likely be speculated. On the price increase front: two major players announced higher rare earth concentrate prices. Note: On October 9 US Eastern Time, the USITC officially initiated a Section 337 investigation. There are 20 named respondents, including Delta, Infineon, MPS, Flex, Celestica, Quanta, the Hon Hai group, as well as Luxshare Precision and Dongguan Luxshare Technology. If the impact is significant, tech stocks will face difficulties.

This Week's Top Stock

Kinwong Electronic (03228) announced that it expects net profit attributable to owners of the parent company, excluding non-recurring gains and losses, to reach RMB 939 million to RMB 1.116 billion for the period, representing a year-on-year increase of 294.34% to 368.68% and a quarter-on-quarter increase of 239.90% to 303.97%. Benefiting from accelerated mass production and shipment of high-performance PCBs in the high-speed communications and AI data infrastructure sectors, combined with reasonable cost-price transmission in general product areas, order structure optimization, and internal cost reduction and efficiency improvement measures, the group expects both revenue and net profit to achieve relatively fast year-on-year and quarter-on-quarter growth for the period. As of the end of the period, the group's order backlog in AI servers and data centers, as well as high-speed optical modules, remains full, with high capacity utilization and yield rates, and the group is fully committed to meeting its delivery targets.

Industry Observation

Over the past year, with the continuous upgrading of multimodal model capabilities, AI content has become a major force in content consumption. On the model side, model capabilities and pricing have gradually matured to the point of large-scale commercialization. From OpenAI's release of Sora at the end of 2024, which kicked off the AI content creation wave, to the significant improvement of seedance2.0 capabilities earlier this year, which opened up substantial commercialization space for AI content, to Alibaba's Wan3.0 and MinimaxH3 driving down the cost of AI content generation, model capabilities and pricing have progressively matured for widespread commercial deployment. The supply side continues to explode, with its share rising. According to the National Radio and Television Administration, in the first eight months of this year, 430,000 micro short dramas were launched nationwide, 13 times the full-year figure for last year, with AI dramas accounting for over 90%. On the demand side, AI content quality continues to improve, becoming more realistic, fluid, and even indistinguishable from reality, gradually capturing ordinary people's daily content consumption. Tencent's WeChat launched an official free short drama mini-program called Green Bubble in September. Guosheng Securities believes this is the first time the WeChat ecosystem has officially entered AI short dramas, signaling Tencent's increased commitment to this direction and driving industry prosperity and accelerated competition. This is expected to consolidate the previously fragmented short drama traffic within WeChat mini-programs and, leveraging the WeChat ecosystem, complete the Tencent AI drama entry point. During the National Day holiday, AI short drama viewership continued to rise. From September 28 to October 4, native AI short drama views on Douyin increased by 7% quarter-on-quarter; as of October 7, 19 of the top 20 on the Hongguo popularity chart were AI dramas, while live-action short drama production starts fell about 75% year-on-year. Beyond the previously viral AI animated dramas, AI live-action dramas, AI long dramas, AI films, and AI interactive film-games are emerging in abundance, such as Mango's "Post-Journey to the West" and Bona's first AI theatrical film "Sanxingdui: Future Past." In Hong Kong stocks, focus on China Literature (00772) and Duiba (01753).

Data Watch

According to data released by the Hong Kong Exchange, the total open interest of Hang Seng Index futures (October) is 133,024 contracts, with net open interest at 45,238 contracts. The settlement date for Hang Seng Index futures is October 29, 2026. With the Hang Seng Index at 24,211 points, the dense zone for bearish certificates is near the central axis, while bullish certificates deviate from the central axis, giving Hong Kong stocks upward momentum. US stocks continue to rise, led by AI concept stocks, but the market worries about the impact of high US interest rates on the banking sector, corporate financing, and the real estate market. The Hang Seng Index is expected to rebound this week.

Editor's Remarks

After the holiday, southbound funds returned and immediately "bought the dip," with net buying of nearly HK$7 billion over two trading days. The short-selling ratio fell from high levels, and the scale of foreign outflows narrowed significantly. The panic sentiment from the previous days was quickly repaired, and market sentiment lifted somewhat from the bottom. However, while short-term rebounds are rebounds, don't get too carried away chasing highs. Disturbances from US bond yields and oil prices remain, the year-end lock-up expiration peak is ahead, and medium-term constraints have not been fully resolved. In the coming days, the market will likely continue to oscillate and diverge. Rather than chasing rallies and dumping dips, it's better to adopt a "structure-first" approach: hold high-dividend stocks as a stable base position, look for high-prosperity targets in innovative drugs, shipping, and the AI industry chain, and wait for earnings inflection points in the consumer sector. Doing less may actually lead to better outcomes.