Hang Seng Index returns to the gain zone after March's last-minute rally

Hang Seng Index returned to a year-to-date gain after the end-of-the month’s strong rally. What are the key drivers, and what to expect in April?

Hang Seng Index March Review

The Hong Kong stocks kicked off March with a best day in the month, a 3.6% daily gain after losing 9% in the previous month. However, the ignited optimism was quickly doused by China’s softer-than-expected growth targets announced on the first weekend.

The week after the National People’s Congress (NPC) meeting, the Hang Seng index fell by over 6%, the worst weekly loss since October 2022. Then came the upheaval across the global banking sector. The collapse of three US banks acerbated the broadly downtrend, dragging the financial-heavy Hang Seng Index to fall below 20000 and refresh a 2023-low at 19000.7

While entering into the final chapter of the month, the momentum started to bright up. Thanks to the eased pressure on the banking sector and the resolved uncertainty around the Fed’s monetary policy, the Hang Seng index managed to pare all the previous losses and return to the 20000 threshold on March 30th.

In the corporate space, Hang Seng's top-one tech stock Alibaba announced the group’s biggest restructure plan ever to “empower all its businesses to become more agile” after Jack Ma’s surprise return to China. Both news were welcomed by the investors and pushed the BABA’s stock price to soar by nearly 20% in the last three days of March.

Hang Seng Index April Preview

• Manufacturing PMI

The Caixin China General Manufacturing PMI will be the first set of data to welcome April. The manufacturing indicator increased to 51.6 in February 2023 from 49.2 in January, which was the highest reading in eight months. However, the expectation is to see the new reading be a slightly smaller number while staying above the expansion zone.

• Inflation

China’s inflation number surprised the market in March. Its annual inflation rate, which was widely expected to push higher considering the “revenge consumption” demand, fell to 1.0% in February 2023 from 2.1% in the prior month. The glass-dropping number not only missed the market forecasts of 1.9% but also recorded the weakest print since February 2022.

• First quarter GDP

The reality-checking time will come on April 18th when China reports its first quarter GDP, the first full quarter after China exited its Covid-Zero setup. The Chinese government set its 2023 growth target for its economy at around 5% on March, lower than last year's target of 5.5% and the market’s expectation.

Hang Seng Index Technical Analysis

From a technical viewpoint, the successful breakout from the descending trend line and the new-formed upward trajectory are supporting the prospect that the index has shrugged off the cloud gathered in the February.

However, the journey ahead for the Hang Seng Index won’t get any easier. The region in between 100-day MA and the March peak ( 20499-20639) will be the first challenge to conquer in April. Once this level can be cleared, buyers might start to look at the area above 21000 and expect the index to retest the March peak at 21020.

Conversely, a failure to this test will form a double-head patter to discourage the bull-viewers and potentially pull the price back to the 20200 level.