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Hang Seng index just went vertical: what next?

The Hang Seng index surged to the highest point since October 10, helped by two major catalysts. It spiked to a high of H$17,316, which was about 18% above the lowest level this year. It remains about 44% below its highest point in 2022.

Hong Kong stocks rebound

The Hang Seng index has been one of the worst-performing indices this year. It has crashed by over 27%, meaning it has underperformed its global peers like the S&P 500 and the DAX index.

Most of Hang Seng’s constituent companies have crashed by double digits this year. Country Garden, Sunny Optical, Geely Automobiles, and Longfor Properties have been the worst performers, declining by over 50%. 

On the other hand, only seven companies have been in the green this year. CNOOC shares have risen by over 28% while China Shenhua Energy, Chow Tai Fook Jewellery, Galaxy Entertainment, and CSPC have risen by over 10%.

Hang Seng has lagged for several reasons. First, most of its constituent companies are from mainland China. As such, they have struggled because of China’s Covid-zero strategy. Second, property stocks have crashed as China has intensified its pressure against the sector. Tech stocks like Alibaba, Tencent, and Meituan have slipped because of Chinese crackdown on the sector.

Hang Seng index rose on Friday for two main reasons. First, the rally was in line with how American stocks performed after the latest consumer inflation data. As we wrote in this report, inflation started cooling down in October. Therefore, there is a likelihood that the Fed will slow its rate hikes.

Second, it rallied after China eased some of its Covid measures. The government will ease its quarantine to two days. China has been the most aggressive in terms of its Covid rules. Therefore, analysts believe that the action will lead to more capital flows to the country.

Hang Seng index forecast

The daily chart shows that the Hang Seng index has been in a strong bullish rebound in the past few weeks. As it rose, the index managed to move above the 25-day moving average. Its up-gap also made it settle at the 50-day MA while the Stochastic Oscillator moved above the overbought level. 

The index has also formed an inverted head and shoulders pattern. Therefore, the index will likely continue rising as buyers target the next key resistance level at H18,252, which was the lowest level on March 15.

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