Long-term yields become the key driver of pricing this week
The US 30-year Treasury yield briefly rose above 5.3%, the highest since June 2007, with German and UK 30-year yields also hitting multi-year highs. It is important to note that this upward move is not driven by rate-hike expectations: the 2-year yield rose about 5 basis points this week, while the 30-year yield fell about 5 basis points, flattening the yield curve, and the probability of a September rate hike priced into futures has dropped to around 30%. The long-end is being pushed up by three fiscal factors—expanding deficits, US public debt exceeding $40 trillion, and large-scale long-term bond issuance by AI-related companies, competing for the same pool of funds. On August 19, the US Treasury raised the single-operation limit for long-term bond buybacks from $20 billion to at least $40 billion, causing the 30-year yield to fall 9 basis points, but this was fully reversed within two trading days. The Treasury Secretary subsequently indicated that the buyback scale could exceed $40 billion. This operation buys time, not a solution; it is not quantitative easing, and the Treasury cannot print money to buy bonds. It essentially swaps short-term for long-term debt, without changing the structure of deficits and supply. The Investment Department believes that intervention changes the pace, not the direction; but for the next one to two months, the pace itself will be sufficient to determine relative sector performance.
Funds shift between sectors, not exiting the market
Last week's price movements followed a highly consistent pattern: sectors sensitive to interest rates and with longer cash flow durations, such as healthcare, saw broad strength. Merck rose about 12%, Danaher and Vertex each rose about 8%, and Eli Lilly and AbbVie each rose about 6%. Consumer staples, energy, railroads, and payment networks also moved in the same direction. In contrast, cyclical and tech hardware sectors bled, with Intel down about 12%, AMD down 8%, KLA and Teradyne each down about 10%, and industrial names like GE Energy down about 10% and Honeywell down about 8%. Large banks generally retreated. The pullback in semiconductors and AI hardware was initially attributed to reports of slowing revenue growth at two major AI model providers, but several pieces of evidence point to another explanation: the overall hedge fund holding level dropped to about 77% on August 19, down 2 percentage points from a week earlier, near the July low, indicating that selling pressure did not come from overcrowded positions. Market volume after mid-August was significantly below the year-to-date average, with small sell orders causing larger declines. Additionally, a large multi-strategy fund disposed of a basket of memory and AI hardware holdings acquired at the end of July through over $4 billion in block trades over three weeks, hedging by selling the semiconductor index rather than individual stocks. This explains why Micron rose about 17% and SanDisk rose about 31% in August, while the index-based semiconductor ETF only rose about 4-5%. In this pullback, portfolio adjustments and liquidity played a more significant role than fundamentals. The market is watching for the reaction to Nvidia's earnings on August 26.
Memory: Management answers cyclical questions with capital allocation
In the past two weeks, three memory manufacturers have taken action. On August 13, SanDisk locked in over half of its bit shipments for the next two years with long-term contracts. On August 19, SK Hynix announced a buyback and cancellation of about 3.3% of its shares, worth 40 trillion won, and changed its cumulative free cash flow return standard for 2025-2027 from a maximum of 50% to at least 50%. On August 21, Samsung Electronics announced a shareholder return pool of 90-110 trillion won, the largest in South Korean corporate history. If management believed the cycle was about to turn, the normal approach would be to retain cash to weather price declines, not distribute it. These three actions, taken together, form a more direct signal than any single-month contract price. However, the market's pricing is nuanced: SK Hynix rose about 6% in a week due to its clear commitment to buy back and cancel shares, while Samsung fell over 5% on August 24 because it did not provide specific buyback and treasury stock cancellation details, leading to expectations that the return would primarily be in dividends. Dividends do not reduce the share count, and buybacks only improve per-share figures when they are ultimately canceled—the market rewards the method of return, not the amount. Another noteworthy observation is that, in a week where the semiconductor sector generally fell nearly 10%, Micron only fell about 0.5% and SanDisk fell about 2.7%, showing significant resilience. The Investment Department maintains a positive view on memory stocks and will continue to monitor two key factors: the direction of fourth-quarter contract prices and whether inventory weeks rise above seven to nine weeks.
Gold and Bitcoin both rise, but support differs
This week, gold rose about 4.6% to around $4,620 per ounce, marking its fifth consecutive weekly gain; Bitcoin rose about 11.8% to around $77,200, its strongest week in two years. Both are supported by the same expectation—that governments are inclined to lower long-term rates, which, with unchanged inflation expectations, leads to lower real rates, benefiting assets with longer cash flow durations. However, the nature of the underlying buyers is very different. For gold, it is actual buying: global central banks net purchased a record 289 tons in the second quarter, totaling 533 tons in the first half, with 45% of central banks planning to increase holdings in the next year, a historical high. The People's Bank of China has been increasing its gold reserves for 21 consecutive months, and gold ETFs have added about 38 tons since their July lows. For Bitcoin, the support is mainly policy narrative—the short-term bond swap operation has rekindled thoughts of stablecoins as short-term government bond buyers. It is also important to note the mechanism driving this rally: currently, the open interest in gold call options is well above average levels. As the gold price approaches key strike prices, option sellers need to buy gold to hedge, further driving the price up. Conversely, if the price falls, the unwinding of these hedges will amplify the decline. This is a two-way amplifier, magnifying both upside and downside moves. The Investment Department maintains its view on the strategic value of gold, while cautioning about short-term volatility risks. It is particularly important to distinguish between gold and crypto assets, even though they moved in the same direction this week, their underlying support is different, and they should be treated separately in portfolios.
Alibaba: AI investment cycle begins with a low base of capital spending
On August 23, Alibaba announced the sale of 710 million new shares at HK$112.70 each, raising HK$80 billion, with the net proceeds to be fully invested in AI infrastructure and full-stack AI capabilities. This is its first share placement since listing in Hong Kong seven years ago and the largest ever in the city, with the offering oversubscribed within an hour, primarily by sovereign wealth funds and long-term investors. The context of this shift is worth noting: Alibaba's past capital spending base was relatively low compared to large North American cloud providers, and this quarter, its cloud business revenue grew 45% year-over-year, accelerating for the fifth consecutive quarter, with operating margins rising from about 7% to 11.6%. The simultaneous improvement in revenue growth and profitability quality is a rare combination among global large-cap tech stocks this quarter. The choice of financing method is also noteworthy—in an environment of rising long-term bond yields and waning market appetite for AI-related bond issuance, choosing equity over debt financing is a proactive way to reduce financial risk. The Investment Department highlights three points to watch: first, the net proceeds of about HK$79.7 billion cover about one and a half quarters of the company's cash shortfall, and the subsequent financing pace is worth tracking; second, the management's claim that AI computing power assets can be recouped in about two years currently lacks verifiable disclosure, as the company has not released the unfulfilled contract amounts and server depreciation periods for its cloud business; third, the market consensus for this fiscal year's capex is about RMB 141.6 billion, lower than the actual RMB 155.1 billion spent in the past twelve months. One of these figures will need to be revised, and if the market aligns with the company's actual spending, the current forward P/E ratio, which seems low, will be adjusted. Based on the information from this earnings report, the sustained improvement in the profitability quality of the cloud business and increased transparency in capex disclosures could serve as catalysts for future valuation repairs.
※ Extracted from the Investment Research Weekly (24 August 2026) prepared by our Investment Department. For general reference only; this does not constitute investment advice or an offer. Please refer to the Disclaimers.
