Hang Seng fell 0.5%
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This week, the Hang Seng Index fell by 0.5%, while the Hang Seng Tech Index dropped by 1.7%. The market experienced significant volatility throughout the week. On Monday and Wednesday, positive news such as the central bank injecting liquidity through large-scale reverse repos, the U.S. delaying the imposition of 301 tariffs on China for at least two weeks, and the appointment of a new Vice Chairman for the China Securities Regulatory Commission boosted market sentiment, leading to gains. However, the market saw a pullback on the other days due to several factors. First, the end-of-month period tends to be volatile, and the presence of key meetings typically correlates with declines. Additionally, geopolitical tensions in the Middle East, a “Black Friday” in global markets, and disappointing earnings from some U.S. tech giants caused significant turbulence in tech stocks, which also affected Hong Kong stocks.
In the U.S. stock market, as of this Thursday, the S&P 500 Index decreased by 0.2%, falling below its 50-DMA. The Nasdaq Index fell by 0.9%. Although it briefly rose above the 50-DMA on Wednesday, it failed to maintain this position and continues to be pressured below this line. The Dow Jones Industrial Average dropped by 0.6%, finding some support at the 21-DMA. In terms of macroeconomic data, the U.S. Department of Commerce reported that the PCE Price Index rose 2.5% y/y in June, higher than market expectations but lower than the previous month’s figure, marking the lowest level in five months. The m/m increase was 0.1%, in line with market expectations and higher than the previous value. The Core PCE Price Index increased 2.6% y/y, unchanged from the previous month but higher than market expectations, marking the lowest level since March 2021. The m/m increase was 0.2%, meeting market expectations but higher than the previous figure. Following this, the Federal Reserve announced after the FOMC meeting that the target range for the federal funds rate would remain unchanged, aligning with market expectations. Additionally, the Fed hinted at a possible rate cut in September, further confirming progress in reducing inflation. Besides focusing on inflation, the Fed has started emphasizing avoiding employment risks, equating employment and inflation targets for the first time in two years. This major shift indicates that inflation may no longer hinder rate cuts. Fed Chair Jerome Powell also stated that a rate cut could be an option at the September FOMC meeting. If inflation data supports it, the FOMC could opt for a rate cut as early as September. Meanwhile, the ADP employment report, known as the “mini non-farm payrolls,” showed a larger-than-expected decline in new jobs, with wage growth falling to its lowest level in three years, signaling a slowdown in the U.S. labor market and reinforcing expectations of a rate cut in September. Furthermore, data from the ISM indicated that the ISM Manufacturing PMI for July was 46.8, significantly below expectations, marking the largest contraction in eight months. New orders and production declined, resulting in the largest drop in employment in four years. According to data released by the U.S. Department of Labor, initial jobless claims for the week ending July 27th were 249,000, higher than expected and the previous week’s figure. Additionally, continued jobless claims rose to 1.877 million, the highest since November 2021. “Cost-cutting” has been the main driver of layoffs so far this year, with the technology and service sectors being the hardest hit.
The CSI 300 fell 0.7% this week on volume below the average and lower than the last week. The market condition was Rally Attempt. This week’s index is more fluctuated. It gapped down on Tuesday. Then it surged on larger volume on Wednesday. Afterwards, it continued to pull back on both Thursday and Friday. It tested the 21DMA but failed. The index is still below all the key moving averages. The official manufacturing PMI stood at 49.4 in July, down slightly by 0.1 percentage points from the previous month, but higher than expected. The Political Bureau of the CPC Central Committee held a meeting on July 30 to deploy the economic work in the second half of the year, proposed to revitalize investor confidence, enhance the inherent stability of the capital market; to boost consumption to expand domestic demand, the focus of economic policy should be more shifted to benefit the people’s livelihood; to strengthen the industry’s self-regulation, to prevent involutional vicious competition. Relatively refined, strengthened the previous policy. Focus on the implementation of subsequent policies. The Fed left interest rates unchanged, in line with market expectations. Fed Chairman Jerome Powell then hinted at a possible rate cut in September. Investors are advised to remain patient and wait for the index to regain its 21DMA. Northbound inflow via the HK-China Stock Connect was RMB3.2B.
Leading stocks rose this week. The average stock in the MarketSmith Hong Kong 33 rose by 0.2% for this week. Our Hong Kong Model Portfolio fell by 3.6% for this week (see details in the Model Portfolio section). Since June 20, 2013, the Hong Kong 33 is up 532.7% vs. a 16.9% down for the Hang Seng.
The best performer in our Hong Kong 33 was SINOPEC SEG(02386), it’s is a leading energy and chemical engineering company in China. The stock gained 7.6% this week. EPS rating stands at 91, RS rating of 90, and A/D rating of B+.
Our Hong Kong Market Status are on a Rally Attempt.
From a technical perspective, this week saw significant market volatility, with the Hang Seng Index oscillating around the 200-DMA but ultimately failing to reclaim it. Regarding the Southbound inflow via the HK-China Stock Connect, there was a continued net inflow this week, totaling HKD 9.177 billion, marking the 25th consecutive week of net inflows. Since May 21 of this year, the Hang Seng Index has been in a downtrend with fluctuations. Although there was a market condition adjustment on Thursday with a rally attempt, rebounds below the 200-DMA tend to be fragile. In the face of market adjustments and uncertainties, investors should remain calm and avoid blindly following trends. It is advisable to focus on stocks with better-than-expected earnings and strong technical performance.
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published on August 2, 2024