Hang Seng downside break eyes retest of 2022 lows

Hong Kong’s Hang Seng is arguably the ugliest index chart in the world right now. As the doorway for offshore investors looking to trade mainland Chinese markets, it’s understandably been hammered more than most by the deterioration in sentiment towards China’s economic outlook recently. There’s been no stimulus bazooka deployed yet, raising questions as to whether the government is willing go down the same path at as the post GFC-playbook given the significant structural problems it created. The longer investors have to wait, as the economic data continues to soften, the more downside momentum it is generating for Chinese markets.

Hang Seng bares the brunt of bearish China sentiment

The Hang Seng looks horrible on the weekly chart. Stuck in a downtrend since the start of 2021, the optimism that accompanied China’s reopening to the world has now all but been erased, seeing the index fall to the lowest level since November 2022. Add in challenges posed by higher interest rates globally and persist geopolitical risks and it’s seen the index break out of the range it’s been sitting in for most of this year. Even though it’s fallen a long way, leaving valuations cheap relative to historic averages, momentum is clearly to the downside. Having broken support just above 18000, traders will be eyeing off a potential move back below 15000, the lows struck last year.

For those looking for a retest of the 2022 lows, a stop above 18100 may help limit potential losses posed by extreme pessimism and potential policymaker support, both of which could spark a meaningful market reversal.

-- Written by David Scutt

Follow David on Twitter @scutty

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