Hong Kong: Hang Seng Index (.HSI) investors convinced now that the Sino-U.S. trade war will drag on and, if anything, intensify
Many Chinese investors are piling into products that provide a hedge against a stock market collapse, convinced now that the Sino-U.S. trade war will drag on and, if anything, intensify.
The dramatic shattering of a month-long truce between Beijing and Washington this month has dashed hopes of a trade deal, and these investors are bracing for more bad news, such as further sanctions on Chinese companies, pressure on ratings agencies to downgrade China’s credit rating and even moves to drive up the price of oil.
Investors are positioning for these tail risks in instruments such as options and exchange-traded products that make money if stock markets fall. They are also diverting cash into gold and safe-haven bonds.
Outstanding contracts of put equity options in China – a form of insurance against a drop in Shanghai’s SSE50 index <.SSE50> – rose to a record 1.5 million this week. Outstanding contracts in China’s stock index futures, another risk-hedging tool, hit this year’s high.
In Hong Kong, leveraged and inverse exchange-traded funds, that reward investors when markets collapse, have seen record buying. An inverse fund product managed by CSOP Asset Management <7500.HK> that allows investors to capitalise on the downside of the benchmark Hang Seng index <.HSI> saw record turnover and a jump in assets under management (AUM). The risk-off sentiment also drove net inflows into CSOP’s money market funds.
Between August 1 and August 6, $6.8 billion in non-resident flows left emerging markets, according to the Institute of International Finance.
China saw more than $2 billion in non-resident equity outflows during this period, with nearly $1 billion in outflows on August 2 alone, following U.S. President Donald Trump’s threats of new tariffs.
Ning Zhu, professor of Finance at the Shanghai Advanced Institute of Finance (SAIF) said he’s confident in Beijing’s ability to manage expectations and avoid a free-fall in the yuan. With strict capital controls in place, foreign currency reserves exceeding $3 trillion, and tools to thwart yuan short-sellers, Zhu doesn’t expect panic-selling in the Chinese currency. Nevertheless, Zhu sees long-term downward pressure on the yuan, due to China’s frothy asset prices, slowing growth, and the country’s massive debt pile.
“There are fewer and fewer drivers for the yuan to appreciate,” he said, adding that China should speed up painful reforms to reinvigorate growth to prop up its currency.
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 27,574.55.
The projected upper bound is: 26,925.85.
The projected lower bound is: 25,264.89.
The projected closing price is: 26,095.37.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
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 29.0594. This is not an overbought or oversold reading. The last signal was a buy 0 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 24.30. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 43 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 -98. This is not a topping or bottoming area. The last signal was a buy 0 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 13 period(s) ago.
Rex Takasugi – TD Profile
HANG SENG INDEX closed up 123.740 at 26,120.770. Volume was 5% below average (neutral) and Bollinger Bands were 93% wider 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: 27,115.80 27,857.21 27,596.75
Volatility: 19 19 21
Volume: 1,811,860,608 1,598,265,216 1,797,374,336
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 is currently 5.3% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect moderate flows of volume out of .HSI (mildly bearish). Our trend forecasting oscillators are currently bearish on .HSI and have had this outlook for the last 8 periods. Our momentum oscillator is currently indicating that .HSI is currently in an oversold condition.
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