**Market Overview**
Great power competition has intensified, with Hong Kong stocks continuing to decline last week. The Hang Seng Index broke below the crucial 20-day moving average. While the US government shutdown issue remains unresolved, escalating sanctions continue: plans to upgrade semiconductor equipment export restrictions to China, strictly prohibiting lithography machines and other equipment sales to China, with companies having 50% controlling stakes also included in the entity list; imposing substantial port tariffs on Chinese vessels effective October 14th, with tariffs increasing annually; and plans to ban Chinese airlines from flying over Russian airspace, essentially creating leverage ahead of the APEC leaders' meeting.
This time, China responded decisively. On October 9th, China issued seven announcements implementing export controls on rare earth-related items, technologies, equipment, raw materials, medium-heavy rare earth items, lithium batteries, graphite, and superhard materials, closing overseas loopholes as well. Beyond affecting US defense contractors, semiconductor companies were directly impacted, causing Trump significant concern. On October 10th, China announced special port fees for US vessels and initiated an antitrust investigation into Qualcomm.
The result was a comprehensive crash in US markets on Friday, with the Nasdaq plummeting 3.56%, S&P 500 falling 2.72%, technology stocks collectively declining, and the VIX fear index surging over 31%. Trump subsequently announced that starting November 1st, all Chinese-origin goods would face an additional 100% tariff on top of existing tariffs, alongside "export controls on all critical software."
China's counter-measures demonstrate stronger initiative and greater intensity, shifting from defense to offense. Crucially, time favors China's position. With limited time remaining before midterm elections, Trump will likely seek compromise if confrontation proves unsuccessful. However, this requires maintaining firm resolve.
First, rare earth counter-measures must take effect. Baotou Steel and Northern Rare Earth announced upward adjustments to Q4 2025 rare earth concentrate related transaction prices - timely news indeed. Second, domestic semiconductors must strengthen. The 2025 Bay Area Semiconductor Industry Ecosystem Expo will be held at Shenzhen Convention Center (Futian) from October 15-17, with expectations for positive developments.
Additionally, weekend coverage highlighted the 14th Five-Year Plan summary and 15th Five-Year Plan outlook, emphasizing infrastructure investment with 102 major projects mentioned. Tibet, Hainan, Xinjiang and other regions have held meetings to plan for the 15th Five-Year period. Capital has already begun positioning last week, with dividend and financial sectors' performance being particularly crucial.
**Weekly Featured Stock**
GT GOLD (08299) announced on October 10th (after trading hours) that it has submitted a transfer application to the Stock Exchange under Chapter 9B of the Main Board Listing Rules for main board listing. The transfer will not involve issuing any new shares.
Central banks worldwide are abandoning US debt and increasing gold reserves: For the first time since 1996, gold's share in central bank reserves (excluding the Federal Reserve) has exceeded US Treasury bonds. Countries including China have continuously purchased gold and sold US debt over the past three years, with some central banks directly requiring gold reserve ratios to reach 30%. This trend remains unchanged and is just beginning.
Institutional gold allocation is accelerating: SPDR holdings have exceeded 1,000 tons, up from around 920 tons in May, indicating overseas institutional investors are accelerating entry. Hong Kong recently announced plans to promote the Airport Authority and financial institutions to expand gold storage in Hong Kong, targeting over 2,000 tons within three years to build a regional gold reserve hub, directly challenging New York and Switzerland's gold center positions. This demonstrates the rising importance of global central bank gold allocation.
**Industry Analysis**
On October 11th, the Democratic Republic of Congo announced cobalt export quotas, strengthening resource sovereignty through quota systems, marking cobalt market transition from surplus to shortage cycles with systematic price center elevation becoming a trend.
Quota data shows domestic company allocations: CMOC's 2026 projection is 31,200 tons, representing 27% of last year's production, 35.9% of basic quotas, and 32.5% of total quotas, with approximately 6,500 tons remaining for Q4 2025 exports; Huayou's Q4 exports are 224 tons (1.24% share) with 1,080 tons for next year; Sheng屯's Q4 exports are 350 tons (1.93% share) with 1,680 tons for next year.
For smelters without quotas: While smelters lack direct quotas, the government has established a 10% "strategic quota" fully allocated by ARECOMS, meaning smelters can obtain corresponding allocations from this platform.
Price increases are now inevitable. Research institutions indicate that while exact levels remain unclear, cobalt price increases are certain, with short-term targets of 400,000 yuan/ton reasonable and potentially reaching 500,000 yuan/ton by year-end. Basic quotas total 87,000 tons with total quotas of 96,600 tons, where the remaining 10% represents adjustable strategic quotas, with companies seeking to secure larger allocations.
Key Hong Kong stocks include LYGEND RESOURCE (02245), CMOC (03993), and Jinchuan International (02362).
**Market Data Analysis**
Hong Kong Exchange data shows Hang Seng Index futures (October) total outstanding contracts at 122,235 with net outstanding at 45,122. Hang Seng Index futures settlement date is October 30, 2024. With the Hang Seng Index at 26,290 points, bear warrant concentration above deviates from the central axis while bull warrants approach below, creating short-selling momentum for the index.
This week's focus is the Federal Reserve's September FOMC meeting minutes, providing insight into policymakers' future rate cut thinking and path. US-China trade negotiation uncertainties raise market concerns, with bearish outlook for the Hang Seng Index this week.
**Conclusion**
Regarding rare earths, agricultural products (Trump's promises to farmer constituents), and TikTok's pending divestiture, expectations suggest Trump will ultimately return to reality after the current standoff, with both sides potentially forming new bilateral trade agreements with higher tariffs.
Recent trading showed negative capital momentum and reduced foreign capital activity, but long-term funds continue providing support, maintaining market safety margins. Short-term avoidance is advised for sectors with high US export dependence, such as some consumer electronics and textile manufacturing Hong Kong stocks, as profits may face pressure from rising export costs. However, technology, software, new consumption and other sectors with evident foreign capital inflows merit continued focus.
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