Hong Kong: HANG SENG INDEX (.HSI) – Coronavirus causes intrepid investors to look east for bargains
There is no lack of superlatives for the drubbing Asia stocks took to end February in the face of soaring coronavirus cases outside of China: Friday was the worst day for regional equities since October 2018, ending the poorest week in two years and the worst February since the global financial crisis. The speed and magnitude of the rout naturally raises one question — when will the market find its footing?
Investors zeroed in on various metrics to answer that question. A fund manager at Samsung Asset Management is tracking the rate of new infections globally, while a strategist at Jefferies Financial Group Inc. said investors should look for stabilization in the junk-bond market. And of course, economic numbers and valuation are also closely monitored.
With low visibility on the virus spread globally, “the level of overshooting from the fundamental equilibrium likely depends on the rate of increase of infections in the U.S. and Europe,” said Alan Richardson, a fund manager at Samsung Asset Management.
Despite fewer new cases in China, infections in South Korea are surging and Japan’s tourism hotspot Hokkaido declared a state of emergency. Global financial markets saw a sudden recalibration of the damage from this health emergency to the world economy, as U.S. stocks had their fastest correction in history and witnessed their worst week since October 2008.
Asian markets are now pricing in 10% earnings growth, said Richardson, adding that “further re-pricing down to a no-growth scenario is possible, implying 10% downside risk from here.” He’s increasing his cash position and switching out of global cyclicals and consumer-discretionary stocks — especially tourism-related ones — into non-cyclicals ones.
To Sean Darby, Jefferies’s global chief strategist, equity markets will only stabilize “when high-yield bonds tell them to.” Stocks will find a floor when credit markets have settled, he wrote in a note published Feb. 28, adding that “equities have been tied to the reach-for-yield theme since the great financial crisis.”
But with “significant” high-yield bond outflows, “it is too early for the MSCI All World to rebound,” he wrote.
Investors pulled $4.2 billion from junk-bond funds in the week ended Feb. 26, the most since 2018, according to data compiled by Refinitiv Lipper. And Asian dollar bonds just had their worst week in more than five years. The turmoil has sent Treasury yields to record lows as investors flee to safer assets and bets jump on more interest-rate cuts by the Federal Reserve.
If the market could have some positive economic news from countries like Japan or South Korea in the next few weeks, then it may return to normal, Colin Harte, a multi-asset quant solutions fund manager at BNP Paribas Asset Management, said by phone on Friday.
China’s official gauge for manufacturing activity contracted in February to a record low, highlighting the devastating impact of the virus on the economy. South Korea’s trade data, a barometer of regional trends, is likely to highlight disruptions in supply chains, according to economists at Bloomberg Intelligence.
Should economic data and containment of the coronavirus fail to sooth investors’ nervousness, the market may “overshoot and push equity to a very low level, until people look at stocks and say ‘well, these company corrections are overdone and valuations are becoming attractive,’” Harte said.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
By the way, prices are vulnerable to a correction towards 27,308.95.
The projected upper bound is: 27,043.48.
The projected lower bound is: 25,154.07.
The projected closing price is: 26,098.77.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 26 white candles and 24 black candles for a net of 2 white candles.
A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 6 falling windows in the last 50 candles–this makes the current falling window even more bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 20.6397. This is not an overbought or oversold reading. The last signal was a buy 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 32.59. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 38 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -164.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 8 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 4 period(s) ago.
Rex Takasugi – TD Profile
HANG SENG INDEX closed down -648.689 at 26,129.930. Volume was 99% above average (neutral) and Bollinger Bands were 1% narrower than normal.
Open High Low Close Volume___
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 27,138.27 27,759.90 27,214.59
Volatility: 19 22 20
Volume: 1,914,209,536 1,697,103,104 1,661,275,136
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
HANG SENG INDEX gapped down today (bearish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
HANG SENG INDEX is currently 4.0% below its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of .HSI at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .HSI and have had this outlook for the last 22 periods.
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