Monthly outlook: Hong Kong stocks are likely to perform better in November than in October

Let's talk about the recent Hong Kong stock market and the outlook for November.

After reviewing the capital flow data for October, the net inflow of southbound capital through the Stock Connect program still reached 100 billion yuan, although the growth rate slowed slightly compared to August-September. However, the net inflow at the asset level was not insignificant. The real net outflow in October came from foreign capital (non-southbound funds), which started to show a net outflow pattern after a short-term peak on October 3. Goldman Sachs and Morgan Stanley alone saw net outflows exceeding 110 billion, with other foreign investors also experiencing varying degrees of outflow.

Moreover, the net outflow of foreign capital was largely coordinated with short-selling leverage in the market, making the actual impact on capital flows more pronounced.

Due to the presence of national team funds and domestic capital control, the A-share market showed more stable trends in September-October. Currently, foreign capital in the Hong Kong market acts more like a volatility amplifier. Because the overall market size is smaller, net fluctuations of tens of billions can significantly impact the market index. During upward trends, it outperforms other markets and rises faster. During downturns, the declines are also more severe. That's just how it is.

The key question is whether the foreign capital outflow in October is a short-term behavior or a long-term bearish outlook. Short-term behavior typically lasts about a month before funds start returning. Long-term behavior, however, indicates a systemic bearish stance.

Conclusion: It is more likely a short-term bearish move by foreign capital.

1. Similar bearish periods have occurred multiple times in the past, mostly at the end or beginning of quarters—December, March-April, and June. These periods often coincide with earnings gaps, allowing investors to exploit information asymmetry to influence short-term market trends. The beginning and end of quarters are also typical times for institutional portfolio adjustments, where short-term trends can be used to achieve profit-taking or lower cost bases.

2. In October, aside from Trump's tariff negotiations, there were very few actual bearish events. Even the tariff issue reached a preliminary conclusion by the end of January, with results better than the earlier short-term agreement, including a substantial reduction in tariffs. Upon closer inspection, there were actually few real bearish factors in October; many were even positive, with steady earnings delivery from some companies. If you believe the market will perform better in the future, taking advantage of short-term sentiment to lower costs is inevitable. If you were a foreign institution, you'd likely do the same—shorting to profit once, then lowering costs to profit again. This strategy has been repeated many times in the past.

3. The actual fundamentals of companies are gradually improving, and solid fundamentals remain unchanged. Except for the overhyped Pop Mart. Look at other companies with recent significant pullbacks.

1. TCL's revenue increased sequentially, with higher average selling prices and improved profit margins. Expectations for Q4 overseas peak season are even higher.

2. Leapmotor delivered 70,000 vehicles in October, ranking among the top tier of new energy vehicle makers. Its current stock price is roughly flat compared to May 2025.

3. Xiaomi, despite facing negative sentiment in October and potential sequential declines in Q3 earnings due to reduced state support, still leads in sales growth for home appliances and smartphones. Its EV deliveries are already fully booked. Negative sentiment won't affect short-term delivery data. Once sentiment stabilizes and orders recover, Q3 may also see profitability in its EV business. The company's premium has already been wiped out in this downturn, with a dynamic P/E of 23x—fully supported by fundamentals. Many similar companies exist, so as long as fundamentals remain strong, short-term bearish moves are just that—short-term. Recovery is inevitable.

Previously, I thought the market might see concentrated portfolio adjustments and pullbacks by late December. Based on current trends, it seems the December pullback has been brought forward to October. This doesn't mean the risk of a December pullback is gone—it still exists. Short-term trends are like this; often, we can only predict a vague direction. Personally, I believe foreign capital is exploiting market gaps for short-term trading gains. The broader upward trend and the fundamentals of good companies remain intact. Time will tell.

I think the November market will likely outperform October for the following reasons:

1. The short-term impact of trade war sentiment in October has passed, and macro conditions are stabilizing.

2. The market has sufficient room for short-term pullbacks, with many quality stocks nearing the lower end of their fundamental valuations.

3. The direction of the 15th Five-Year Plan is set, and long-term capital adjustments will start to show in November.

For the market, short-term pullbacks and consolidation are more beneficial than harmful.

There's no such thing as a market that only rises without falling. Market expectations always outpace actual corporate growth. Retail investors' expectations are prone to extremes. If the index rises 20%, they expect another 30%. If it drops 10%, they think the market has crashed. In reality, market pullbacks and consolidation often digest overextended valuations and build momentum for future breakthroughs.

Short-term expectations:

1. A significant recovery rally is likely in November-December, though the exact timing is hard to predict.

2. Q1 next year may see a stronger rally than Q4, with many companies' earnings reflected in annual reports.

3. Focus remains on companies with high growth and improved earnings expectations. This is a shift in baseline margins. The "ghost stories" will eventually prove to be just that. Q1 is likely to be driven by earnings momentum.