As the market awaits the Federal Reserve's decision, nerves have somewhat settled. After hitting a record low trading volume on the mainland, the A-share market rebounded, and Hong Kong stocks stabilized, closing up 0.19% for the day. The Fed will announce its latest interest rate decision early Thursday morning Beijing time. Typically, with inflation rising, the Fed raising rates by 25 basis points is standard procedure. However, such a hike would run counter to Trump's desire to lower borrowing costs. From this perspective, Kevin Warsh, the Fed chair handpicked by Trump, faces a significant test.
White House National Economic Council Director Kevin Hassett stated Tuesday that he and the President will respect Fed Chair Kevin Warsh's decision, regardless of the outcome. Two scenarios are possible: the first, a typical 25-basis-point hike, which is already well-priced in, with a likely dovish tone in guidance emphasizing that the hike is temporary and that rate cuts will follow once inflation subsides; the second, holding rates steady, a scenario with a lower probability but not out of the question. If the Fed doesn't hike, the stock market rally could be stronger as it would be a positive surprise. The first scenario would also be a relief, easing uncertainty. The worst outcome would be a hawkish hike, which could see markets weaken again.
Independent precious metals analyst and BubbleBubble Report founder Jesse Colombo predicts gold will likely continue to rise regardless of the Fed's decision. If the Fed hikes 25 basis points as expected, gold could see a modest rebound once uncertainty clears. However, if the Fed defies expectations and holds rates, gold prices could surge, potentially propelling a move toward the $5,000 level. Today's gold market reflected this dynamic, with Lingbao Gold (03330), Chifeng Gold (06693), and Wanguo International Gold Group (03939) all surging over 7%.
Tech stocks, which had been beaten down, finally rebounded following support from Trump and Jensen Huang. Reports indicate that Anthropic has signed its first data center lease agreement in Australia, involving a campus with a planned total capacity of 2.16 gigawatts, comparable to some of the largest data centers currently in operation globally. According to Anthropic's announcement and contract details, the company has made compute procurement commitments totaling $517 billion over the past 11 months, securing at least 14.8GW of additional computing power. Despite public statements about slowing down, actions speak louder than words.
On September 16, Hong Kong Chief Executive John Lee unveiled the "First Five-Year Plan for Economic and Social Development of the Hong Kong Special Administrative Region (2026-2030)." He emphasized promoting AI as a key industry for Hong Kong's future development, empowering all sectors with AI technology. The core of AI lies in chips: wafer manufacturing stocks Hua Hong Semiconductor (01347) and SMIC (00981) both gained over 5%; packaging company ASMPT (00522) rose over 4%; AI chip designer Tianshu Zhixin (09903) advanced over 6%; and high-end autonomous driving chip company Axera Semiconductor (00600) surged over 10%.
Optical communications performed even more strongly. Goldman Sachs significantly increased its demand forecast for high-speed optical modules, raising the 2027/2028 demand projections for 800G and above optical modules by 39% and 36%, respectively, to 144 million and 171 million units. HaiGuangXinZheng (01191) surged over 16%, and Cambridge Industries Group (06166) gained over 10%. PCB maker Han's Laser Technology (03200), which strengthened yesterday, added another 5%. Server terminal manufacturers followed suit, with Lenovo Group (00992) CFO Wai Ming Wong stating the company's valuation is severely undervalued at just one-seventh of Dell's, targeting Dell's future net margin—the stock rose over 8% today. Legend Holdings (03396) gained over 7%.
The previously mentioned stocks eligible for Stock Connect continued their strong performance. Haiqing Zhiyuan (01392) received fresh stimulus; on September 15, media reported that the Shenzhen Municipal Bureau of Industry and Information Technology published its proposed list of model service institutions for 2026. The company's proprietary "Zhiyuan Origin Large Model" was successfully selected, providing government endorsement and sales assurance—the stock surged over 36% today. Baige Online (02672), also previously mentioned, jumped over 20% again, demonstrating that this theme has been revitalized by southbound capital flows, and more Stock Connect-eligible names are likely to be explored.
On September 16, Axera Semiconductor (00600) announced that its self-developed automotive-grade ADAS SoC M57 chip, integrated into Aptiv's next-generation intelligent front-view integrated unit, has achieved mass production and delivery in vehicle models from a leading domestic new energy vehicle maker targeting the EU market, meeting E-NCAP 2026 five-star safety standards. The M57 has secured design wins from multiple domestic and international automakers and Tier 1 suppliers, covering scenarios like intelligent front-view integrated units and parking-driving integrated domain controllers. This Stock Connect-eligible name surged over 10%.
Meanwhile, CATL (03750) has been trading weakly recently, breaking down from key support. The direct trigger is that several automakers are switching to second-tier battery manufacturers. For instance, Li Auto (02015) is switching some models to Sunwoda (300207.SZ) batteries while also developing in-house batteries; Xiaomi (01810) is no longer using CATL batteries for its new Pengcheng series, opting for its self-developed Longjia batteries supplied by CALB (03931) and Sunwoda; and Changan Automobile, Geely Automobile (00175), and GAC Group (02238) are generally adopting a multi-supplier plus self-developed battery strategy, reducing sole reliance on CATL. This represents incremental business for companies like CALB (03931), which rose over 6% today.
The reason for this shift is simple: automakers are struggling, as evident from their price charts, which have mostly broken down. However, the combined net profit of many vehicle manufacturers is less than that of CATL alone. Automakers don't want to be mere "assembly plants" making batteries their primary profit center. Cost pressure is the most immediate concern—batteries account for 30-40% of vehicle costs, and second-tier suppliers generally are 10-20% cheaper for equivalent cell specifications, saving 3,000-6,000 yuan per vehicle. Second-tier suppliers are also offering more flexible payment terms and business conditions to win orders.
Secondly, automakers want to regain control over battery technology, moving away from being "assemblers." In the past, automakers provided requirements, and CATL delivered complete battery packs, with BMS, thermal management, and cell design largely dominated by the battery maker, giving automakers a "black box" product. Now, second-tier manufacturers can supply only the cells, allowing automakers to handle Pack assembly and BMS calibration themselves, giving them complete battery system capabilities. Thirdly, supply chain risk diversification—not putting all eggs in one basket. Ultimately, these are forced adaptations due to the broader environment. When vehicle manufacturing was highly profitable, these issues were negligible, but now survival demands strategic adjustments.
Looking ahead, order diversification away from CATL is inevitable, with lower earnings likely and a re-rating of its valuation. Establishing a new baseline requires a broad industry recovery, new progress in overseas markets including energy storage, or technological leadership in areas like solid-state batteries—all of which take time.
Sector Focus
Intel CEO Lip-Bu Tan believes the memory shortage will continue to worsen, with power supply and cooling technology becoming two critical issues the semiconductor industry must address. Tan noted that when he warned early last year that memory might become a major bottleneck, few truly recognized the problem. The issue has materialized and is set to deteriorate further. Production capacity is severely constrained, with many projects delayed due to insufficient memory supply, and memory prices have surged to five to seven times their original levels. Securing memory supply has become particularly challenging for budget phones and laptops. Key Hong Kong-listed names to watch: GigaDevice Semiconductor (03986), Longsys Electronics (09976), and Montage Technology (06809).
Stock Spotlight
Converge Technology (01729): Global Capacity Expansion, Record Q2 Orders
The company reported H1 FY2026 revenue of HK$10.066 billion, up 107.4% year-over-year; gross profit of HK$1.26 billion, up 96.5%; net profit attributable to shareholders of HK$828 million, up 163.9%; gross margin of 12.6%, down 0.6 percentage points; and net margin of 8.2%, up 1.7 percentage points. The strong first-half performance was driven by three factors: 1) consolidation of the Dejincang acquisition, contributing HK$2.89 billion in copper wire business revenue (from zero last year); 2) server business revenue up 68% year-over-year; and 3) data center business within the wire and cable segment, focused on MPO, up 23%.
Profit growth was driven by two factors: 1) high-growth MPO and server businesses lifting core operating profit, with dual-density MPO now in mass production, compatible with 800G/1.6T and CPO; and 2) improved margins at associate company LEONI, contributing HK$165 million in investment income versus a HK$500,000 loss last year. In Q2 FY2026, both server business and data center wire and cable orders hit record highs. By segment: 1) Wire and cable components: strong computing demand from customer G drove MPO revenue and profit growth, the main profit contributor. Revenue was HK$2.08 billion, up 21%, accounting for 21% of total; operating profit was HK$510 million, up 44%, with an operating margin of 24.6%, up 4 percentage points. The data center segment remains the largest within this division, contributing 11.5% of total revenue at HK$1.16 billion, up 23% year-over-year. 2) Server business: domestic CSP capital expenditure drove both volume and margin growth. Revenue was HK$4.31 billion, up 68.3%, representing 43% of total, with operating profit of HK$230 million. 3) Copper wire: the Dejincang acquisition contributed incremental revenue of HK$2.89 billion, representing 29% of total, with operating profit of HK$100 million and an operating margin of 3.4%, due to the acquisition consolidation completed in late 2025.
The company continues to expand its factories in China and Vietnam to accommodate incremental computing orders, with LEONI consolidation bringing additional automotive cable orders. Its global capacity footprint spans Huizhou, Vietnam, Mexico, and Europe, with the LEONI acquisition enhancing overseas automotive cable capacity and Dejincang securing upstream copper wire supply. The company is deeply involved in a North American customer's new computing product lines, set to launch soon, including ShuffleBox for CPO and 800V data center power cables. Additionally, LEONI's automotive business integration has exceeded expectations, with Q2 orders reaching record highs, driving clear growth in server revenue and profit.
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