Hong Kong: HANG SENG INDEX (.HSI) stocks are trading about 9% cheaper than the five-year average

Hong Kong: HANG SENG INDEX (.HSI) stocks are trading about 9% cheaper than the five-year average

Hong Kong: HANG SENG INDEX (.HSI) stocks are trading about 9% cheaper than the five-year average

The economy is heading for a recession, violent protests show no sign of easing and yet Hong Kong’s financial markets are enjoying an unusual period of calm.

A gauge of Hang Seng Index volatility has fallen more than 20% this month to the lowest level since mid-July, while the local dollar has barely moved in weeks. Even US speculators are giving up, after their bearish bets in August sent short interest on a Hong Kong stocks fund to a six-year high. 

The city’s interbank borrowing costs have also eased, a sign of looser liquidity. 

Investors are on high alert for signs of large fund outflows, but the evidence has so far been reassuring. Optimism over trade relations between China and the US has recently outweighed concerns about a weak yuan eroding corporate earnings. Mainland investors are buying Hong Kong stocks, while initial public offerings are once again luring capital.

“The Hong Kong dollar is steady, the economy isn’t as bad as it was during the Asian financial crisis, and rates will stay relatively high on IPOs and looming year-end effects,” said Eddie Cheung, an emerging markets strategist at Credit Agricole CIB.

The Hang Seng benchmark tumbled 8.6% last quarter, the biggest loss among major global gauges tracked by Bloomberg. Developers and mall operators were among the hardest hit as escalating protests weighed on the economy and deterred tourists. 

Data due later this month will likely signal a technical recession after a contraction in the second quarter.

But “investors are not in a rush to move money out,” said Carie Li, an economist at OCBC Wing Hang Bank Ltd. “Hong Kong’s role as a global financial centre and gateway to mainland China won’t change in the foreseeable future.

It remains an ideal place for companies to seek financing.” ESR Cayman Ltd is poised to raise $1.6bn in a revived initial public offering. Budweiser Brewing Company APAC Ltd raised $5bn last month, having shelved its share sale in July on weak demand in the early days of the large-scale protests.

Local stocks are trading about 9% cheaper than the five-year average, according to price-to-earnings multiples compiled by Bloomberg. That’s encouraged mainland investors, who are poised to be net buyers of Hong Kong stocks for eight consecutive months.

Calm is also being reflected in the options market, where the price of bearish puts on the Hang Seng Index has dropped versus the cost of bullish calls in October. The Hang Seng Index fell 0.5% on Friday.

Recent data still points to caution – in August, Hong Kong’s local currency deposits dropped the most since May 2018 while savings of foreign-exchange jumped, according to the city’s de-facto central bank. That reflects “some increased risk aversion towards Hong Kong dollar assets,” Morgan Stanley strategists led by Chun Him Cheung wrote in a note.

While long-time rival Singapore has been seen to benefit from Hong Kong’s turbulence, the city’s historical reputation for resilience is making investors more confident.

“To remain a financial centre, you need to make sure that money stays here,” said Linus Yip, a Hong Kong-based strategist with First Shanghai Securities Ltd “I am still optimistic.”

Technical Indicators

Overall, the bias in prices is: Sideways.

The projected upper bound is: 27,457.46.

The projected lower bound is: 25,931.92.

The projected closing price is: 26,694.69.

Candlesticks

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 22 white candles and 28 black candles for a net of 6 black 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 41.5837. This is not an overbought or oversold reading. The last signal was a sell 4 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 54.84. 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 buy 47 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 49. This is not a topping or bottoming area. The last signal was a sell 4 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 buy 9 period(s) ago.

Rex Takasugi – TD Profile

HANG SENG INDEX closed down -130.559 at 26,667.391. Volume was 28% below average (neutral) and Bollinger Bands were 28% narrower than normal.

Open     High      Low     Close     Volume___
26,795.64126,795.64126,621.18026,667.3911,151,226,240
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 26,680.21 26,299.35 27,697.77
Volatility: 11 19 19
Volume: 1,476,128,384 1,664,028,544 1,783,522,816

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 3.7% below its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .HSI at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .HSI and have had this outlook for the last 6 periods.

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