Dow Jones gains as treasuries fall, Alibaba share buyback boosts Hang Seng Index

Dow Jones, Hang Seng Index, Alibaba, Asia-Pacific at open

The Dow Jones Industrial Average climbed 0.74% and the tech-heavy Nasdaq 100 surged 1.94% on Tuesday. Wall Street stocks rose for five out of the last six trading sessions as investors shrugged off the Ukraine crisis and focused on tightening monetary policy amid inflation concerns. Fed Chair Jerome Powell signaled that a 50bps rate hike is possible at the next FOMC meeting as inflation hits a 40-year high and looks set to edge even higher due to rising commodity prices. He also believed that the US economy is strong enough to withstand higher borrowing costs.

Separately, the ten-year Treasury yield climbed 9bps to 2.38%, reflecting a continuous selloff in the bond market. It suggests that capital may be flowing from safe havens into equities as traders seek yield and growth. Still, rising Treasury yields may limit the upside potential for equities as the opportunity cost of holding them becomes higher.

Hong Kong’s Hang Seng Index climbed 3.15% and the Hang Seng Tech Index soared 5.37% on Tuesday after Alibaba raised its share buyback program to $25 billion from $15 billion. This marks the largest repurchase program ever among Chinese tech stocks. The amount is equivalent to about 9% of Alibaba’s market cap, thus significantly boosting investor confidence.

Alibaba’s share price soared 11% after the announcement, showing that the market welcomed the decision. Share buybacks usually happen when the company’s management believes that its stock price has fallen below the intrinsic value, and serves to shore up prices and revitalize investor confidence. Alibaba’s Deputy Chief Financial Officer Toby Xu said 'the upsized share buyback underscores our confidence in Alibaba’s long-term, sustainable growth potential and value creation.'

Last week, Chinese Vice Premier Liu He said more favorable policies will be rolled out to boost economic growth as well as to stabilize the capital market. Hong Kong and mainland stocks soared after the announcement, with Hang Seng Index and the CSI 300 Index gaining 18.8% and 6.8% respectively to date. The Hang Seng Tech Index, which has lost 68% of its value over the past 12 months, has rebounded 34% since last Wednesday. The policy 'U-turn' and Alibaba’s share buyback plan suggest that Hong Kong’s technology sector has probably reached a bottom and may extend its rally in the weeks to come.

Alibaba – still a long way to go

Asia-Pacific markets look set to open on the front foot following a positive lead on Wall Street. Futures in Japan, mainland China, Australia, Hong Kong, South Korea, Taiwan, Singapore, Malaysia, India and Indonesia are all in the green.

Looking ahead, the UK core inflation rate dominates the economic docket alongside Fed Chair Jerome Powell’s speech and new homes sales figures.

Looking back to Tuesday’s close, 7 out of 9 Dow Jones sectors ended higher, with 80% of the index’s constituents closing in the green. Information technology (+1.45%), financials (+1.10%) and industrials (+1.0%) were among the best performers, whereas energy (-0.33%) and healthcare (-0.28%) trailed behind.

Dow Jones Sector Performance 22 March 2022

Dow Jones technical analysis

The Dow Jones Industrial Average formed an 'AB=CD' pattern, which is perceived as a bullish trend-reversal indicator. Prices are challenging 34,720 (38.2% Fibonacci extension) for immediate resistance, breaching which will expose the next resistance level of 35,140. The MACD indicator formed a bullish crossover and trended higher, underpinning upward momentum.

Dow Jones index – daily chart

Hang Seng Index technical analysis

The Hang Seng Index (HSI) breached above a trendline resistance and thus opened the door for further upside potential with an eye on 22,450 – the 61.8% Fibonacci retracement. An immediate support level can be found at 21,640. Holding above this level may pave the way for more gains. The MACD indicator formed a bullish crossover and trended higher, suggesting that buying pressure may be building.

Hang Seng Index – daily chart

ASX 200 index technical analysis:

The ASX 200 index is breached above a key resistance level of 7,290 and thus opened the door for further upside potential. The next resistance level can be found at around 7,435 – the 78.6% Fibonacci retracement. The MACD indicator pierced through the neutral midpoint and trended higher, suggesting that bullish momentum is dominating.

ASX 200 index – daily chart

Follow Margaret Yang on Twitter @margaretyjy

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