Hong Kong stocks rose today even as the trade rhetoric between the United States and China continue to rise. The Hang Seng index, which tracks some of the biggest companies in the city, rose by 45 basis points.
Hang Seng index awaits Hong Kong GDP data
The Hang Seng index is rising ahead of the final reading of Hong Kong GDP data. Data from the statistics office is expected to show that the city’s GDP contracted by a record 5.3%. Analysts also expect the economy to contract by a record 8.9% on a year on year basis. This will be the worst performance on record. It will also be the worst contraction since the Asian financial crisis of 1998.
As I reported yesterday, the Hong Kong government expects the economy to disappoint because of a combination of the coronavirus pandemic and the months of protests. This has led to relatively minimal activity in the city that is known as the gateway to China.
The Hong Kong housing market is crumbling and analysts warn that the bubble could burst. With the neighbouring Macau being in crisis, the gambling money that moves in Hong Kong has all but dried up. All this has led to a credit rating downgrade of the city by Fitch.
Hong Kong stocks reacts to simmering trade war
Another reason why Hang Seng has struggled is the simmering war of words between the United States and China. The rhetoric has gotten so bad that Donald Trump has threatened to cut of the US relationship with China completely. As the US election nears, the rhetoric will likely get worse. However, it appears that China is going into this crisis from a place of strength. As I wrote earlier this month, many advisors to Xi Jinping have been asking him to do away with the deal the country signed in January. They argue that the US economy is doing so bad and that another trade war will make it worse.
Best and worst performers
Most companies in the Hang Seng were in the green today. AAX Technologies was the best performing stock, gaining by more than 7%. It was followed by Sunny Optical, China Unicorn, and Hang Lung, which rose by more than 1%. The worst performing companies in the Hang Seng were WH Group, China Overseas, China Life Insurance, and Want Want China, which fell by more than 1%.
On the daily chart, the Hang Seng index was in a strong upward trend that started in March. Yesterday, an interesting thing happened as the index dropped below the pink trendline, which was guiding the upward movement. Also, it has remained below the 50-day and 100-day exponential moving averages and it seems that it wants to move below the Ichimoku cloud. Therefore, I expect the bears to be in control as they attempt to test the 23.6% retracement at $23,000.
On the flip side, a move above $24,473 – the 50-day EMA – will cancel this prediction because it will signal that there are more buyers in the market.