Hong Kong equities tend to shift direction around month-end, and with mainland holidays removing southbound flows, the market slumped to another low last week. Overseas conditions also stayed tight, as core members of the U.S. administration held a closed-door meeting for several hours at Camp David, the presidential retreat in Maryland, to discuss the Iran conflict and next steps in the confrontation involving Saudi Arabia and Yemen's Houthi forces.

Despite the upcoming midterm elections, further offensive action cannot be ruled out as a way to divert attention. On 8 October, the minutes of the Federal Reserve's September monetary policy meeting were released. Foreign media expect "almost all" officials to favor at least one more rate hike this year, with "several" leaning toward two.

However, U.S. nonfarm payrolls rose by 29,000 in September, against expectations of 90,000 and a prior gain of 162,000. After the data, U.S. stock futures briefly jumped. This week, Fed officials including Bowman and Logan are scheduled to speak, and based on the latest figures, the probability of no hike in October is quite high. Capital markets this week are also watching U.S. Treasury auctions closely: on 7 October Eastern Time, the U.S. sold 10-year notes worth $39 billion; on 8 October, it auctioned 30-year bonds worth $22 billion. Investors are watching the auction yields and whether demand holds up.

In short, without southbound funding support, Hong Kong stocks will struggle to escape their weak setup unless positive catalysts emerge. The Q3 earnings season is about to begin, and the first companies to report may attract speculative interest. On the theme front, the tenth World Summit AI will be held in Amsterdam, the Netherlands, from 7 to 8 October 2026, with executives from giants including OpenAI, Meta, Google and Nvidia taking part. Sentiment toward tech is divided unless there is a breakthrough development. This week will also bring the gradual announcement of the 2026 Nobel Prizes in Physics, Chemistry and Literature. Investors will be watching for any standout new theme.

A spokesperson for the UN Secretary-General, Dujarric, said global food prices rose again in September. Wheat prices climbed to their highest level since August 2023, while corn reached a three-year high. Restricted logistics in the Black Sea region and persistent uncertainty over shipping through the Strait of Hormuz are affecting global grain markets. Agriculture and livestock-related sectors may see some stimulus.

This week's top pick

LYGEND RESOURCE (02245) In 2025, the company generated revenue of RMB40.24 billion, up 37.7% year on year, with net profit attributable to shareholders of RMB2.86 billion, up 61.2% year on year. In 25H2, revenue was RMB22.09 billion, up 21.7% quarter on quarter, while net profit attributable to shareholders was RMB1.43 billion, flat quarter on quarter. For 2025, the company plans a dividend of RMB0.6 per share (including tax), totaling RMB930 million in cash dividends, a payout ratio of 32.6%, implying a dividend yield of 3.5% based on the 2 April closing price.

In 2025, the company officially launched a wet-process slag resource utilization demonstration project and an MHP refining project, completing feasibility studies and regulatory filings to ensure the projects proceed on schedule. Core highlights: 1) Long-term agreements secure nickel ore supply, with a clear ore price advantage. The company's Indonesian nickel smelting project receives nickel ore feedstock from a partner, with the two sides signing a 20-year agreement to guarantee supply. Nickel ore pricing uses the guidance price set by the Indonesian government, giving a prominent cost advantage in nickel ore feedstock. 2) Indonesia plans 400,000 tonnes of nickel capacity, offering substantial capacity flexibility. The company and its partner plan 120,000 tonnes of wet-process nickel and 280,000 tonnes of pyrometallurgical nickel capacity in Indonesia. Six pyrometallurgical nickel lines reached full production on schedule in 2025, and all remaining lines are planned to start production in 2026, representing a large capacity increase. 3) Nickel and cobalt moving together create promising growth. The Democratic Republic of the Congo, the world's largest supplier of cobalt feedstock, has taken a firm stance on supporting prices and implemented an export quota system, sharply contracting cobalt supply and reversing the industry's supply-demand balance, pushing the cobalt price center higher. Indonesia is leaning toward resource nationalism, and nickel ore quotas are expected to shrink, supporting higher nickel prices. The company's wet-process nickel capacity is located in Indonesia, so sales are not affected by DRC export restrictions, and it stands to benefit from rising nickel and cobalt prices, giving it notable growth potential.

In summary, the company has a cost advantage in nickel ore feedstock and significant capacity flexibility. With the DRC sharply reducing cobalt supply, the cobalt price center has clearly shifted higher, while Indonesia plans to cut nickel ore quotas. With nickel and cobalt moving in tandem, the company has strong growth prospects.

Industry watch

Domestic large models are entering a commercialization efficiency race, with cost and ecosystem becoming key differentiators. Competition among Chinese large models has shifted from a contest of capabilities to a systemic battle across capability, ecosystem, cost and monetization. As of 31 August, a total of 1,112 generative AI services in China had completed filing, and 731 applications or functions had completed registration. The overall capabilities of leading models are converging: in the SuperCLUE general framework test in July 2026, Qwen3.8-Max-0902, DeepSeek V4.1 Flash, GLM-5.3 and Kimi K3 clustered between 70 and 73 points overall, but each led in different areas, with GLM-5.3 ahead in agentic coding and task planning.

With open weights, long context, native multimodality and Agent capabilities becoming more widespread, the industry's focus is shifting from parameter scale and single-run leaderboard results to a systemic contest spanning technical capability, developer ecosystem, inference cost and commercialization efficiency. GLM is moving from coding to long-horizon Agents, with the model and application matrix expanding together. Zhipu continues to iterate along the GLM technical roadmap, with model capabilities extending from language generation and coding assistance to task planning, tool use and engineering delivery. GLM-5 marks a leap from "writing code" to "completing engineering," while GLM-5.1 and 5.2 further strengthen sustained work and million-level context. GLM-5.3 and GLM-5.3-Flash target high-value complex tasks and high-frequency, large-scale calls respectively, while GLM-5-Turbo is optimized for tool use, sustained tasks and multi-agent collaboration.

On the application side, the company has formed a product matrix comprising Z.ai, Zhipu Qingyan, ZCode, AutoClaw, AutoGLM, Zread.ai and AMiner, covering dialogue and creation, coding, desktop office work, mobile operation and scientific research, pushing model capabilities from API calls toward actual task execution. API volume growth is driving a shift in the revenue mix, while compute adaptation and the open-source ecosystem support expansion. In the first half of 2026, Zhipu generated revenue of RMB954 million, up 399.74% year on year; of that, open platform and API revenue was RMB825 million, up 2,735.7% year on year, accounting for about 86.5% of total revenue. Gross margin for that business rose from negative 0.4% to 24.6%, as the business model accelerated its shift from one-off on-premise deployment to continuously called cloud services.

The company's ARR continues to grow, with guidance of $3 billion by the end of 2026. Zhipu has become compatible with more than 40 mainstream chips and completed deep adaptation with several domestic compute platforms, achieving large-scale inference on 100,000-level domestic chips, with unit token inference cost down 80% from the start of the year. As of the relevant reporting period, the company had open-sourced more than 50 models with cumulative downloads exceeding 45 million, while enterprise and developer users on its MaaS platform exceeded 5.8 million. Its net loss narrowed by 12.12% year on year over the same period, but the R&D expense ratio remained at 223.42%, meaning the company is still in a phase of using high R&D investment to expand model capabilities and commercial scale. Open Source Securities recommends that investors watch: Z.AI (02513), MINIMAX-W (00100), Alibaba (09988) and Tencent Holdings (00700).

Market data watch

Data released by Hong Kong Exchanges and Clearing showed that total open interest in October Hang Seng Index futures stood at 137,122 contracts, with net open interest at 51,041 contracts. The settlement date for Hang Seng Index futures is 29 October 2026. With the Hang Seng Index at 23,972 points, the dense bull certificate zone below is near the midpoint, giving Hong Kong stocks downward pressure. At the recently concluded FOMC meeting, policymakers projected one more 25 basis point rate hike this year, while the bond market has turned more pessimistic, with interest rate futures now pricing three more hikes over the next year totaling 75 basis points. U.S. AI bonds and Treasuries are competing for funds, worsening the liquidity shortage. The Hang Seng Index is seen lower this week.

Editor's take

During the National Day holiday, southbound flows into Hong Kong were absent as mainland investors were on break, leaving buying support effectively offline. Combined with the 10-year U.S. Treasury yield climbing to 5.3% and foreign investors broadly fleeing to safety, the Hang Seng Index posted its largest single-day drop since March, with financial stocks leading the decline. HSBC Holdings plunged more than 5% in a single day, making for a nerve-wracking session. But frankly, this wave was more an oversold move driven by sentiment and liquidity than a genuine collapse in fundamentals.

Bearish trading in Hong Kong stocks is now extremely crowded, with short-selling turnover as a share of total turnover reaching its fifth-highest level since 2015, while the Hang Seng Index's forward price-to-earnings ratio has fallen to 9.97 times. In such conditions, a rebound may not need a full economic recovery; a wave of short covering could be enough to lift the market. The key variables over the next few days are: first, whether the sharp rise in long-end U.S. Treasury yields can stop, since trading-related factors account for a large share of the surge, and after quarter-end effects fade, yields will likely consolidate at high levels and pull back; second, whether southbound funds return to support the market after the A-share market opens. A major turning point has not yet appeared, but repair opportunities after the short-term oversell are already taking shape.