The Hang Seng Index Continued Its Rebound from the Previous Two Weeks

Hang Seng raised 1.0%

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This week, the Hang Seng Index rose by 1.0%, while the Hang Seng Tech Index increased by 0.3%. Overall, the Hang Seng Index continued its rebound from the previous two weeks. The rise was attributed to several factors: first, some companies reported earnings exceeding market expectations, which drove up their respective stock prices; second, high-dividend stocks, particularly in the banking sector, performed strongly, and expectations of an upcoming rate cut by the Federal Reserve also boosted market sentiment. However, the market did not experience a smooth ride throughout the week. On Wednesday, the Hang Seng Index faced a significant pullback, mainly due to several negative factors. Specifically, multiple public funds faced liquidation risks, and investor redemption pressures led to tightened market liquidity. The interconnectedness between A-shares and Hong Kong stocks meant that fund flows and sentiment changes in the A-share market indirectly impacted Hong Kong stocks. Additionally, the European Union’s decision to impose anti-subsidy duties on Chinese electric vehicles and the uncertainty surrounding the outcome of the U.S. presidential election both contributed to increased market volatility.

U.S. Stock Market, as of this Thursday, the S&P 500 index is up 0.3%, the Nasdaq has declined by 0.1%, and the Dow Jones has risen by 0.1%. On the macroeconomic front, data released by S&P Global shows that the preliminary reading of the U.S. August Markit Manufacturing PMI came in at 48, below expectations and the previous reading, marking the fastest contraction this year due to further weakness in production, orders, and factory employment. In contrast, the preliminary reading of the U.S. August Markit Services PMI was 55.2, exceeding both expectations and the prior reading, achieving 19 consecutive months of expansion. The U.S. August Markit Composite PMI came in at 54.1, above expectations but lower than the previous reading, reaching its lowest level since April this year. Uncertainty surrounding the U.S. presidential election in November and concerns over demand outlook, particularly in the manufacturing sector, continue to dampen market sentiment. Regarding interest rates, the Federal Reserve’s minutes from the July monetary policy meeting, released on the 21st, suggest that if inflation and other economic indicators continue as expected, the Fed may cut rates at its September meeting. According to the CME FedWatch Tool, as of the evening of the 21st, there is a 65% probability of a 25 basis point cut and a 35% probability of a 50 basis point cut at the September meeting, which will be held from September 17-18. In the labor market, the U.S. Department of Labor has released preliminary revised data on nonfarm employment through March of this year. The data shows that the nonfarm employment gain for the past year has been significantly revised down by 818,000, marking the largest downward revision since 2009 and reducing the year-over-year employment growth rate to 1.3%. Meanwhile, for the week ending August 17, initial jobless claims were 232,000, in line with market expectations and slightly higher than the previous week, indicating a gradual easing in the labor market. However, for the week ending August 10, continuing claims increased slightly to 1.863 million, remaining at the highest level since November 2021.

The CSI 300 fell 0.6% this week on volume below the average but higher than the last week. The market condition was Rally Attempt. The index has continued to fall this week, and has been close to the previous low of 3,298. If it falls below the August 15 low of 3,298, the current round of attempts to rebound will fail, and the market condition will be adjusted to Downtrend. Resistance is still located in the 21DMA. Both the one-year and five-year Loan Prime Rates (LPRs) remained unchanged in August. Wednesday’s Fed minutes showed a strong preference for a September rate cut. Investors are advised to take a cautious approach and pay attention to the disclosure of first-half results. The trading information mechanism for Shanghai-Hong Kong Stock Connect program and Shenzhen-Hong Kong Stock Connect program is adjusted. The SSE and SZSE announced that they decided not to publish the daily northbound inflow/outflow data from August 19th onwards.

Leading stocks raised this week. The average stock in the MarketSmith Hong Kong 33 fell by 0.2% for this week. Our Hong Kong Model Portfolio rose by 2.6% for this week (see details in the Model Portfolio section). Since June 20, 2013, the Hong Kong 33 is up 539.9% vs. a 13.7% down for the Hang Seng.

The best performer in our Hong Kong 33 was COSCO SHIP INTL(00517), it’s is an investment holding company mainly engaged in ship related businesses. The stock gained 9.9% this week. EPS rating stands at 98, RS rating of 90, and A/D rating of B-.

Our Hong Kong Market Status are on a Confirmed Uptrend

From a technical perspective, the Hang Seng Index encountered some resistance at the 50-DMA but ultimately managed to break through it. The next resistance level is around the 18,000-point mark. In terms of trading volume, this week’s volume was higher than last week’s and slightly above the 50-D average volume, which is considered a positive signal. Regarding the Southbound inflow via the HK-China Stock Connect, this week saw the end of a 27-week streak of net inflows, with a total net outflow of HKD 1.459 billion. Looking at the daily data, net outflows occurred only on Monday, while the remaining four days recorded net inflows. Overall, the Hang Seng Index is showing some positive signs. Although there is no need for the same level of cautious and meticulous as before, it is still important to remain calm and avoid blindly following trends. It is advisable to closely monitor whether the performance at key resistance levels remains strong and to focus on stocks with better-than-expected earnings and strong technical performance.

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Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

published on August 23, 2024

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