Hang Seng fell 1.6%
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This week, with only four trading days due to the New Year holiday, the Hang Seng Index fell 1.6%, and the Hang Seng Tech Index dropped 3.0%, both slipping below their 50-DMA. The weekly decline was primarily driven by Thursday’s performance. On one hand, weakness in the U.S. stock market weighed on Hong Kong stocks. Meanwhile, as Donald Trump prepares to formally assume the U.S. presidency later this month, concerns over potential policy uncertainties have heightened market anxiety. This has driven the U.S. dollar index higher, putting pressure on other currencies. Additionally, uncertainty surrounding trade tariffs and China’s export control measures targeting certain U.S. entities further exacerbated market tensions. Domestic economic data also fell short of expectations, fueling investor concerns over economic growth and impacting market sentiment. The global market outlook remains challenging. Russia’s decision to halt natural gas shipments to Europe via Ukraine is expected to negatively impact Europe’s economy, further affecting stocks of automakers and other companies with operations in the region. Other factors such as muted expectations for annual report previews and tightening liquidity have also weighed on the market. Weak performances in major financials, technology stocks, and blue-chip heavyweights added further drag to the overall market.
In the U.S. stock market, trading was closed for one day this week due to the New Year holiday. As of Thursday, the S&P 500 had fallen 1.7%, breaking below its 50-DMA. The Nasdaq declined 2.2% but found support near its 50-DMA, while the Dow Jones Industrial Average dropped 1.4%, remaining below its 50-DMA. On the macroeconomic front, the Chicago Purchasing Managers’ Index (PMI) published by MNI came in at 36.9 for December, significantly below expectations and the prior reading. This level is near the lows seen during the COVID-19 lockdowns, indicating a severe contraction in manufacturing activity in the Chicago region. Data from the National Association of Realtors (NAR) showed that the Pending Home Sales Index for November rose by 2.2% m/m, exceeding both expectations and the previous figure. This marks the highest level since early 2023 and represents the fourth consecutive month of growth. According to S&P Global, the final December reading for the Markit Manufacturing PMI was 49.4, slightly below the prior figure but above market expectations. The index remains below the 50 threshold, indicating continued contraction in manufacturing activity. In employment data, the U.S. Department of Labor reported that initial jobless claims for the week ending December 28 came in at 211,000, below expectations and the prior week’s level, marking an unexpected drop to an eight-month low. Meanwhile, continuing jobless claims for the week ending December 21 also fell to 1.84 million, the lowest level in three months. The four-week moving average dropped to 223,250, the lowest since late November. Elsewhere, Mastercard data showed that U.S. holiday retail sales grew 3.8% y/y, compared to a 3.1% increase in 2023. This indicates that U.S. consumers remain willing and able to spend, though discounts and promotions were the key drivers. The resilience in consumer spending adds further evidence supporting a pause in Federal Reserve rate cuts next January. According to the CME FedWatch Tool, as of January 2, the market estimates an 11.8% probability of a 25-BP rate cut by the Fed in January, with an 88.2% probability of maintaining the current rate.
In the A-share market, trading was limited to four sessions this week due to the New Year holiday. Despite the shortened trading week, the CSI 300 Index plunged 5.2%, breaking below its 50-DMA. Trading volume was slightly lower than last week and remains below the 50-D average volume, indicating that the market is still facing resistance in its upward momentum. The support level is at the October 18 low of 3,765.16, while the resistance level is at the 50-DMA. On the macroeconomic front, data from the National Bureau of Statistics showed that profits of industrial enterprises above designated size fell by 7.3% y/y in November, marking the fourth consecutive month of decline. However, the decline narrowed significantly by 2.7 percentage points compared to October, partly due to a high base last year. From January to November, the total profits of industrial enterprises above designated size reached RMB 66.67 trillion, down 4.7% y/y, with the contraction widening from the 4.3% drop recorded for the January-to-October period. In December, the Manufacturing Purchasing Managers’ Index (PMI) was 50.1%, down 0.2 percentage points from the previous month but remaining above the threshold for growth for the third consecutive month. The Non-Manufacturing Business Activity Index and the Composite PMI Output Index both stood at 52.2%, rising by 2.2 and 1.4 percentage points, respectively, from the previous month, reflecting a notable improvement in economic activity. All three indices remained in the expansion zone. According to S&P Global, the Caixin China Manufacturing PMI for December was 50.5, down 1 percentage point from the prior reading of 51.5 but still above the 50 mark, indicating expansion. This marks the third consecutive month of growth in manufacturing activity.
Leading stocks fell this week. The average stock in the MarketSmith Hong Kong 33 fell by 1.0% for this week. Our Hong Kong Model Portfolio fell by 1.7% for this week (see details in the Model Portfolio section). Since June 20, 2013, the Hong Kong 33 is up 585.5% vs. a 3.2% down for the Hang Seng.
The best performer in our Hong Kong 33 was CONANT OPTICAL(02276), it’s a leading manufacturer of resin eyeglass lenses in China. The stock gained 14.5% this week. EPS rating stands at 75, RS rating of 97, and A/D rating of A+.
Our Hong Kong Market Status are in an Uptrend Under Pressure.
From a technical perspective, the Hang Seng Index broke below the 20,000-point level, as well as the 21-D and 50-D MA this week. On Thursday, the index gapped down, with trading volume slightly exceeding the 50-D average volume. Despite this, the overall market trend remains in a consolidation phase. The support level is at 19,054.4 points, the low of November 26, 2024, while the resistance level is at the gap formed on Thursday. In terms of the Southbound inflow via the HK-China Stock Connect, there was a net inflow of HKD 29.573 billion this week, continuing the trend of capital inflow. Overall, the Hong Kong stock market is still affected by various uncertainties. At this stage, investors are advised to remain calm and rational, avoid blindly following the crowd, and prioritize stocks with stronger-than-expected earnings and solid technicals. A cautious investment strategy is recommended to navigate market fluctuations.
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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 January 3, 2025