Hang Seng Index attempting to rebound from nine-month low
Hang Seng Index is down close to 6.5% year-to-date. Does its recent bounce indicate a longer-term shift in sentiments?
Hang Seng Index – What to expect
The ongoing uncertainty surrounding Chinese equities continues to revolve around the increased regulatory risks weighing on its large domestic technology firms, which takes up more than 25% weightage of the Hang Seng Index. This includes clampdown on algorithms that restrict competition and increased supervision of data collection, which directly put a cap on companies’ profitability. With recent release of a five-year blueprint calling for greater regulation across key industries, one may expect more restructuring to come, with no quick resolution of the situation.
Based on the daily southbound Hong Kong stock connect net turnover, there have been net inflows of around HKD2.6 billion over the past two trading days. Bottom-fishing sentiments have been fuelled by stellar corporate earnings drawing interest from some institutional investors, along with Tencent Holdings' share buyback. Although yesterday’s inflow was the highest in two weeks, overall fund flow for August still stands at a net outflow of HKD1.5 billion. Therefore, it awaits to be seen if the recent up-move indicates a longer-term shift in sentiments.
Valuation
As increased regulatory risks bring about uncertainty over forward earnings, a look at Hang Seng Index’s price-to-book (P/B) ratio suggests that valuation is currently trading close to two standard deviations below its five-year mean. This brings its valuation close to the Covid-19 sell-off back in early 2020, which is its lowest historical P/B ratio to date. However, with the uncertainty to future earnings from new regulations, profitability valuation metrics have been showing up conflicting signals, which will only be able to draw greater clarity over the longer term.
Technical analysis
On the daily chart, the index has seen a recent bounce off the 24,830 level, where a previous resistance level is now serving as support. This level may also draw some technical buyers from the Fibonacci 61.8% retracement level. With the Moving Average Convergence Divergence (MACD) indicator displaying higher lows, it suggests that downside momentum is weakening in the near term. That said, the index may find some resistance at 26,000, where a recent attempt to bounce off this level in early August was unsuccessful. This level also coincides with a downward trendline, which has been connecting lower highs since June. A retracement from this level may bring about a lower high, marking a continuation of its near-term downtrend.
A look at the monthly chart suggests that an ascending channel pattern has been in place. This points towards the 24,300 level potentially providing longer-term support, where the bottom trendline of the channel pattern has held up the index on previous four occasions. Longer-term resistance may be found at the psychological 30,000 level, where the index was weighed on previous two occasions.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Seize your opportunity
Deal on the world’s stock indices today.
- Trade on rising or falling markets
- Get one-point spreads on the FTSE 100
- Unrivalled 24-hour pricing
See opportunity on an index?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on an index?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from one point on the FTSE 100
- Trade more 24-hour indices than any other provider
- Analyse and deal seamlessly on smart, fast charts
See opportunity on an index?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
