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Hong Kong: HANG SENG INDEX (.HSI) now trades at 99% of book value

Hong Kong: HANG SENG INDEX (.HSI) now trades at 99% of book value

A month into one of the fastest global market meltdowns in recent history, investors aren’t willing to pay more than liquidation value for stocks in Hong Kong.

The 50-member Hang Seng Index now trades at 99% of book value, a level only seen twice before in data compiled by Bloomberg going back to 1993.

That means traders are pricing firms’ assets at less than than their stated worth, something that last happened in 2016. The gauge last week entered its second bear market in as many years.

The prospect that the virus outbreak may send the global economy into recession is adding to the fragile sentiment in Hong Kong, where the economy was already on a downturn due to last year’s protests.

The city’s stock market may also be paying the price for being highly liquid and widely owned, making it vulnerable to volatility shocks in the US or Europe.

After a 4% slump to start the week, the Hang Seng Index was relatively steady yesterday as US stock-index futures jumped. Investors in Hong Kong have been boosting their hedges and preparing for further losses, with short selling on Monday accounting for about 18% of total turnover on Hong Kong’s main board.

That’s the highest proportion in more than six months.

About half of the companies listed on the Hang Seng Index trade below book value, with Swire Pacific Ltd – which controls embattled airline Cathay Pacific Airways Ltd. — the cheapest with a ratio of just 0.31.

Internet giant Tencent Holdings Ltd remain expensive with a price-to-book ratio of almost 7.3, though that’s still down from a February high of 8.9.

In 2016, Hong Kong stocks fell below the value of their net assets amid concerns over capital outflows and China’s economic slowdown. But reaching the milestone could also signal that the worst may soon be over for Hong Kong: when it happened in 2016, the index went on to rally about 80% in two years.

The Hang Seng measure’s relative-strength index remained below 30 for a fourth day Tuesday, a signal that selling may have gone too far and too fast.

Technical Indicators

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 26,146.87.

The projected upper bound is: 23,427.36.

The projected lower bound is: 20,918.91.

The projected closing price is: 22,173.13.

Candlesticks

A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
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 26 white candles and 24 black candles for a net of 2 white candles.

Momentum Indicators

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.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 16.5785. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 3 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 20.15. 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 6 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 -135.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 11 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 17 period(s) ago.

Rex Takasugi – TD Profile

HANG SENG INDEX closed down -971.910 at 22,291.820. Volume was 125% above average (neutral) and Bollinger Bands were 149% wider than normal.

Open     High      Low     Close     Volume___
23,023.34023,425.02922,167.42022,291.8204,217,153,536
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 24,554.02 26,953.99 27,039.22
Volatility: 45 31 23
Volume: 3,686,678,272 2,192,521,472 1,733,086,208

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.

Summary

HANG SENG INDEX is currently 17.6% 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 35 periods. Our momentum oscillator is currently indicating that .HSI is currently in an oversold condition.

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