Hong Kong stocks have crawled back in the past few weeks, helped by the ongoing actions by Beijing. The Hang Seng index has risen to $16,570, 12% above its lowest level this year. It has joined the other Chinese indices like the Shanghai Composite and China A50 that have bounced back.
Why Hong Kong stocks are recoveringThe Hang Seng index has rebounded recently after Beijing announced measures to boost Chinese equities, which have shed over $7 trillion in the past few months.
Beijing has replaced its top securities regulator, barred some direct market access (DMA) actions by hedge funds, and prevented short-selling.
These actions have benefited the country’s stock market but analysts are concerns about their long-term benefits.
The next important catalyst for the Hang Seng and other Chinese indices is this week’s Two Sessions in Beijing.
This is an important event where China unveils its strategy for the year and set its GDP forecast. Analysts expect that the government will maintain a GDP growth estimate of 5%.
Investors will also focus on any talks of stimulus by Xi Jinping’s government. In the past, Xi has used the meetings to stimulate the economy.
Still, the main expectation is that the administration will avoid market pressure to provide stimulus. A stimulus would be positive for Hong Kong and mainland China stocks.
The biggest issue for these stocks is that foreign investors are no longer in love with Hong Kong stocks as they used to before.
Instead, these investors have turned their focus to American equities, which have now surged to a record high.
They are also looking for opportunities elsewhere, especially in Japan, where the Nikkei 225 index surged to an all-time high.
The top performers in the Hang Seng index this year are companies like CNOOC, NetEase, Trip.com, PetroChina, and China Unicom. All these stocks have jumped by more than 10% this year.
It has been dragged by the likes of WuXi AppTech, Wuxi Biologics, New World, and Sunny Optical, which have dropped by over 25% this year.
Hang Seng index forecast
Hang Seng chart by TradingView
The Hang Seng index has bounced back in the past few weeks. In this period, it has managed to move above the 50-day and 25-day moving averages, which have formed a bullish crossover.
The Relative Strength Index (RSI) has moved from the oversold level of 25.79 to 56. It has also risen above the upper side of the descending channel, which is shown in black.
Therefore, I suspect that the index will resume the downward trend in the coming weeks. If this happens, the next point to watch will be the psychological point at H$16,000. A move above the resistance at H$16,877 will invalidate the bearish view.
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