Hang Seng Index: China’s stimulus boost in doubt

After reporting better-than-expected GDP growth in the third quarter of the year, Beijing has stepped up its support for its beleaguered economy this week with a new phase of central government interventions. However, these bolstering measures only managed to support Chinese stocks for one day.

China’s new stimulus measures

China announced its new economic stimulus plan on Tuesday, which includes increasing the fiscal deficit ratio from 3% to 3.8% of the gross domestic product (GDP) and issuing an additional 1 trillion yuan ($137 billion) in sovereign debt during the fourth quarter, with the claimed intention to support disaster relief and infrastructure.

It's worth noting that China has rarely adjusted its budget mid-year, with previous instances occurring in 2008 following the Magnitude 7.9 Sichuan earthquake and during the late 1990s amid the turmoil of the Asian financial crisis. Hence, it’s not hard to see that this week’s move not only open the door to the next level of support from central government but, more importantly, highlights the heightened sense of urgency among top policymakers to revitalize the economy.

So, how are investors responding to the new boost?

Equity markets initially reacted positively to the support measures, however, the rally didn’t last long and the price movements suggested that traders remain skeptical of whether these supports are sufficient to halt the downtrend of the world's second-largest economy.

The CSI 300 Index closed only 0.5% higher on Wednesday, less than half of its earlier gains which Hong Kong’s Hang Seng Index finished up by less than 1% despite jumping as much as 3% in early hours.

Hang Seng Index

Hang Seng’s daily chart has revealed a newly formed downward-sloping trendline resistance (red line), while support is being held around the previous August-October trendline (black line).

It appears that the yearly-low level at 16,971 may face another test in the near term before breaking and opening up the floor to the November 28th, 2022 swing low at 16,812. Furthermore, the Relative Strength Index (RSI) also points to a downside risk as it is now hovering close to the over-sold territory below the midpoint. On the flip side, imminent resistance comes from the early October low, sitting at 17,176.

Hang Seng Tech Index

Jumping out from its bear-market zone, Hang Seng Tech Index briefly attempted to regain the 20-day moving average (MA) but quickly retreated under a distinct resistance at 3754 (early Oct low).

Overall, the price remains closely aligned with its descending trajectory and faces the risk of retesting its four-month-low in the range of 3600-3619 if slides further.