HANG SENG, CHINA A50, STRAITS TIMES INDEX OUTLOOK:
- The Hang Seng Index soared 2.8% to 25,124 after a holiday, defying fear of security law disputes
- The China A50 Index registered a two-day gain of 6%, lifted by brokerage and property firms
- Singapore’s Straits Times Index climbed for a fourth day to 2,637, yet still underperformed peers
Hang Seng Index Outlook:
Hong Kong’s Hang Seng Index (HSI) stock market benchmark enjoyed a catch-up rally yesterday after a holiday break, with sentiment boosted by PBoC rate cuts and a decent rebound on Wall Street this week. A stronger-than-expected US nonfarm payroll report(chart below) is likely to underpin risk appetite across Asia-Pacific equities today, and may empower major Asian indices with momentum to challenge their imminent resistance levels.
HSI faces strong resistance at 25,000, which it failed to break on three occasions since the end of April (chart below) amid growth and political concerns. But this time could be different. PBoC rate cuts led to a broad rebound in Greater China equities in the past two days, sending the Shanghai Composite to its highest level since January 2020.
Sectorwise, brokerage and insurance firms were leading gains in the financial sector (+2.5%), which contributed to 50% of the index’s weighting (chart below). The commerce and industry sector (+2.85%) was also gaining momentum, with Tencent (700 HK) hitting a record high of HK$ 518.5.
Trading at a 10.56 price-to-earnings (P/E)ratio, the Hang Seng Index is one of the cheapest major indices in the world form a valuation point of view.
US markets are closed for a holiday on Friday.
Source: his.com.hk, DailyFX
Source: Bloomberg, DailyFX
Hang Seng Index –Technical Analysis
HSI is attempting to break out above a key resistance at 25,000, which is not only the upper ceiling of an ‘Ascending Triangle’ but also the 50% Fibonacci retracement level. A firm breach above 25,000 may open room for more upside towards 26,050 – the 61.8% Fibonacci retracement level.
The MACD indicator has formed a tiny ‘golden cross’, which is a bullish signal.
Hang Seng Index – Daily Chart
FTSE China A50Outlook:
The FTSE China A50 index soared another 3% yesterday, registering a weekly gain of 6.5%. Trading in the Shanghai and Shenzhen stock exchanges is heating up, with total volume breaking 1 trillion yuan yesterday – an encouraging signal to experienced traders. The Shanghai Composite has reached a six-month high of 3,090.
The PBoC’s decision to slash both the relending and rediscount rates by 25 bps to bolster small business and rural sectors hit by the Covid-19 pandemic could serve as a catalyst to ignite a financial sector rally. A solid Caixin manufacturing PMI reading also boosted equity trading sentiment.
Technically, the China A50 Index is riding an uptrend which is highlighted in the green channel (chart below). It is attempting to breakout above the upper bound of the channel with a two-day rally. The next resistance can be found at 14,950 – the 127.2% Fibonacci extension.
FTSE China A50 Index – Daily Chart
Straits Times Index Outlook:
Singapore’s Straits Times Index stock market benchmark climbed 2.5% this week, paring most of last week’s losses. Investors are cautiously balancing Covid-19 developments and improvement in manufacturing PMI figures released this week. Still, Singapore’s equity benchmark underperformed regional peers in the last three weeks.
Technically, the Straits Times Index is wobbling between 2,560 and 2,680, which serve as its immediate support and resistance levels, respectively. 20-, 50- and 100-day simple moving averages (SMAs) have likely formed a ‘golden cross’ on its daily chart, suggesting that downside is limited compared to the upside.
Straits Times Index – Daily Chart
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— Written by Margaret Yang, Strategist for DailyFX.com
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