Key meetings at critical junctures have bolstered market confidence, with the Hang Seng Index moving above 26,000 points again last week. Over the weekend, Chinese and U.S. trade teams engaged in in-depth and candid discussions on trade issues of mutual concern, arriving at a preliminary consensus. U.S. Treasury Secretary Yellen stated that a "very successful framework" for the trade negotiations was established. Essentially, this implies that both parties identified some areas of easy agreement, while other topics still await determination at the leaders' summit. The U.S. Consumer Price Index (CPI) rose by 3% year-on-year in September, marking the highest increase since January this year, albeit slightly below the market expectation of 3.1%. Meanwhile, core CPI saw a month-on-month slowdown to 0.2%, also under market forecasts, enhancing Wall Street's confidence in a potential interest rate cut by the Federal Reserve. The Fed is expected to lower rates by 25 basis points in the early hours of October 30. The central bank aims to maintain a balance in monetary policy concerning strength, timing, and rhythm to ensure the smooth operation of equity, bond, and foreign exchange markets. The overall sentiment remains positive this week, especially with attention on whether the Chinese and U.S. leaders will have further discussions at the APEC meeting. Any dialogues are generally viewed as favorable for the market. Additionally, a state visit to South Korea on October 30 is anticipated to yield some preliminary results. The market's focus continues to be on the technology sector. From October 27 to 29, Jensen Huang will attend NVIDIA's GTC and deliver a keynote speech, with this year's theme encompassing quantum computing. NVIDIA's official communications suggest that the era of physical AI is upon us, involving simulation precedents, cloud training, and edge deployment, with embodied intelligent robots advancing towards efficient implementation. In the area of photoresists, China has made new breakthroughs. Continuous drivers for chips and AI are expected; JD Logistics plans to purchase 3 million robots over the next five years, with robotics being a significant focus for the 14th Five-Year Plan. Collaboration between China and South Korea or the potential free trade zone is also worth close attention.

This week's "Golden Stock" is WUXI APPTEC (02359), which reported a further improvement in net profit margins for Q3. The company achieved revenues of 32.86 billion yuan (+18.6%, with ongoing operations climbing +22.5%) over the first three quarters. Adjusted Non-IFRS net profit reached 10.55 billion yuan (+43.4%), while the Non-IFRS profit margin was 32.1% (YoY +5.6 percentage points). In Q3 alone, it reported revenues of 12.06 billion yuan (YoY +15.3%, ongoing operations +19.7%, QoQ +8.2%), with adjusted Non-IFRS net profit at 4.22 billion yuan (YoY +42.0%, QoQ +16.1%) and a Non-IFRS profit margin of 35.0% (YoY +6.6 percentage points, QoQ +2.4 percentage points). The company raised its full-year revenue growth guidance to 17-18% (previously 13-17%) and the overall revenue guidance to 43.5-44.0 billion yuan (previously 42.5-43.5 billion yuan), showing confidence in further enhancing the adjusted Non-IFRS net profit margin. Due to production cycle reasons, CAPEX is expected to be reduced to 5.5-6.0 billion yuan (previously 7-8 billion yuan), while free cash flow guidance was adjusted upwards to 8.0-8.5 billion yuan (previously 5.0-6.0 billion yuan). Q3 showcased strong order growth primarily driven by strong demand for small molecule orders, significantly enhancing the gross margin. As of Q3, the order backlog stood at 59.88 billion yuan (+41.2%). The chemical business continued to grow under the CRDMO model, with revenues of 25.98 billion yuan in the first three quarters (+29.8%). WUXI Chemistry's adjusted Non-IFRS gross margin improved to 51.3%, YoY +5.8 percentage points; Q3 revenue reached 9.68 billion yuan (YoY +22.8%, QoQ +8.6%), with a calculated single Q3 Non-IFRS gross margin of 55.2%, YoY +7.1 percentage points, QoQ +4.9 percentage points. Revenue breakdown suggests that TIDES is experiencing robust growth. R-end revenue for the first three quarters was approximately 3.9 billion yuan (YoY -4.3%), with Q3 revenue at 1.309 billion yuan (YoY -1.9%, QoQ +1.4%); DM-end for the first three quarters saw revenues of 14.24 billion yuan (+14.2%), with Q3 revenue at 5.56 billion yuan (YoY +9.4%, QoQ +15.1%); Tides delivered revenues of 7.84 billion yuan (+120.8%), with Q3 revenue at 5.56 billion yuan (YoY +9.4%, QoQ +15.1%). By the end of September, Tides had seen a year-on-year increase of 17.1% in its order backlog; the number of clients served increased by 12% YoY, and the quantity of served molecules rose by 34% YoY; as of Q3, the company completed capacity construction for peptides in Taixing ahead of schedule, with the overall volume of peptide solid-phase synthesis reactors exceeding 100,000L. The company announced it would focus further on its core CRDMO operations by selling its CRO+SMO business to Hillhouse Capital, with this related business expected to be included in the discontinued operating segments in the 2025 annual report.

In observations of the industry, a certain mainland fund commented on the recent continuous declines in innovative drug stocks in Hong Kong as follows: Aside from commonly perceived factors like short-term profit-taking by funds and impacts from overseas policies, there are several less consensus reasons. 1. Changing logic in foreign pricing: A notable characteristic of Hong Kong's pharmaceutical market is the dominance of foreign capital in pricing; their pricing capability has even surpassed that of recent large orders in companies like Innovent Biologics in the HSI. Even with good news from large BD orders, stocks went up initially but dropped later, suggesting that foreign investors may be reassessing the value of the innovative drug BD outbound model, viewing favorable news as an opportunity to offload. 2. Market speculation behavior: Data revealed by the Hong Kong Stock Exchange indicates that leading foreign investors like BlackRock frequently enter and exit the market, such as buying during significant dips on October 10 and selling high on October 16. Such behavior contributes to the speculative nature of Hong Kong innovative drug stocks; for instance, Innovent saw a rapid decline after opening high on October 22, dragging down all innovative drug stocks, potentially due to speculation among foreign investors. 3. Risks of speculative hype: Certain "three-no" innovative drug companies (no revenues, no products, no BD) show signs of valuation bubbles. Early-stage clinical companies may have overstretched their market caps based on projected success probabilities over the next 3-5 years, leading to an imbalanced risk-reward ratio. When market sentiment is cautious, these companies may quickly face fund sell-offs, adversely affecting the broader innovative drug sector's performance. 4. Intensified industry competition: Some pharma companies have reported weak profitability, such as Hutchison China MediTech experiencing plummeting sales of its core product. Concerns regarding high spending for growth versus a survival strategy focusing on cost control are likely heightening investors' worries about the innovative drug sector.

Data observations show that the Hong Kong Stock Exchange has reported that the total number of open contracts for the Hang Seng Index futures (October) stands at 93,246 contracts, with a net open number of 30,158. The settlement date for the Hang Seng futures is set for October 30, 2024. The Hang Seng Index is currently at 26,160 points, with dense bearish certificates near the midpoint, indicating potential for upward momentum in the index. Attention remains on the outcome of the China-U.S. trade negotiations, with an eye on the Federal Reserve's further interest rate cuts; this week the outlook for the Hang Seng Index is bullish.

As the year approaches its end, various institutions have shown demand for narrowing risk exposures, prompting a shift in market styles. Low-valued and dividend-focused stocks may regain favor, corresponding to upward trends.