The battered Hang Seng index is down by more than 1.40%, becoming the second-worst performing index in Asia after Nikkei 225. The index is trading at $24,215, which is its lowest level since June 18. However, the index, which is down by more than 13% this year, could see a rebound in the second half of the year, according to analysts. Analysts at Credit Suisse expect the Hang Seng to jump to $26,000, an upside of about 7%.
US delisting of Chinese companies
Analysts at Credit Suisse believe that the recent activities by the United States to delist Chinese firms will be a boom for the third biggest bourse in Asia. The Trump administration is concerned that most Chinese companies are not complying with American accounting standards. These concerns were accelerated after the implosion of Luckin Coffee, the Chinese Starbucks competitor.
Analysts believe that this action will be a good thing for the Hang Seng, which could collect most of these companies. Indeed, in recent months, we have seen many Chinese companies dual-list in the Asian city. These are companies like Alibaba and Tencent. Analysts believe that Chinese firms like Pinduoduo, Baidu, TAL Education, Tencent Music, New Orient Education, iQiyi, and Trip.com are potential companies.
Hang Seng valuations cheap
According to South China Morning Post, most companies in the Hang Seng are extremely undervalued. The paper argues that the recent protests and the virus issues have led to a sharp dislocation of value in the Hang Seng. They point to the fact that the index is mostly comprised of traditional industries like real estate. New economy firms make-up about one-tenth if the Hang Seng index. A report by China Renaissance points that these tech firms will account to about 35% of the index in the next two years. The Credit Suisse analyst said:
“There is probably too much bad news in the prices. Hong Kong, at these valuations, is an attractive and interesting opportunity.”
Inflows from mainland
A few weeks ago, I wrote that many investors in Mainland China had rushed to invest in battered companies in the Hang Seng. Indeed, this year alone, more than $30 billion has flowed from the mainland to Hong Kong as traders seek for yields and bargains. Therefore, these inflows are expected to increase in the near term. Finally, they point to the weaker US dollar as a catalyst for the index.
Top movers in Hang Seng
Most companies in the Hang Seng index are in the red today. Swire Pacific, a leading investor in Cathay Pacific, is the biggest laggard, with its stock down by more than 5.25%. It has dropped because of the surging coronavirus cases. It is followed by China Unicorn, CSPC Pharma, Geely Automobile, Wharf Real Estate, and Sands China. On the other hand, the best-performers are China Shenhua Energy, China Construction, Techtronic, and Tencent Holdings.
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Hang Seng technical analysis
On the daily chart, the Hang Seng index is in its third straight day of losses. Another important thing has happened since the index has moved below the ascending trendline shown in pink. This line joins the lowest levels on May 25, May 29, June 15, and June 23. It is also slightly below the 50-day exponential moving averages and along the 38.2% Fibonacci retracement. Therefore, in the near term, there is a possibility that the index will continue falling as bears attempt to test the next support at $24,000.
On the other hand, a move above $24,500 will invalidate this trend. This price is at the intersection of the ascending trendline and the highest point on June 18.