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Hang Seng: Hong Kong stocks bounce as housing bubble appears to burst

Hang Seng

Hong Kong stocks rose today as the market blushed-off concerns of the sliding housing market. The Hang Seng index rose by almost 1 per cent as most companies remained in the green.

Hong Kong stocks ignore housing market jitters

Hong Kong is known for its small and super expensive properties. After years of rapid growth, analysts are getting concerned that the property bubble is bursting.

In the past two weeks, a number of retail landlords sounded an alarm as they issued the worst profit warnings ever. Real estate companies like Link REIT, Wheelock, and Emperor have issued their biggest warnings ever.

According to analyst, the industry is facing a moment of reckoning as coronavirus stalls travel to the Asian city. This has been worsened by high risks of protests that started last year.

As a result, most analysts expect retail landlords and hotel owners to be the worst-affected. Some analysts see income for hotel landlords falling by more than 25% this year. Retail rents are expected to fall by more than 8%.

In a report this week, JP Morgan said that house prices would drop by 10% this year while those at Morgan Stanley expect the prices to jump by 5%.

These numbers came as several businesses in the city like gyms and restaurants reopened. According to SCMP, most of these companies said that they don’t expect to make a comeback any time soon.

Hang Seng cheers trade optimism

The Hang Seng index is also rising because of optimism from Liu He, Steve Mnuchin, and Robert Lighthizer recommitted to the light deal that was signed early this year. This comes after reports emerged that said that China was not meeting its side of the agreement because of the coronavirus pandemic. Still, a call among the negotiators boosted confidence that an escalation of a trade war will not happen. In a statement, the US trade office representative said”:

“Both sides agreed that good progress is being made on creating good governmental infrastructures necessary to make the agreement a success.”

Best and worst-performing Hong Kong stocks

Most Hong Kong stocks rose today, which is surprising since the Hang Seng index is made up mostly of real estate stocks. There were just seven laggards index, with the biggest losers being HKEX, Ping An Insurance, CLP Holdings and WH Group.

The best performing in the Hang Seng were AAC Technologies, Galaxy Entertainment, and Hang Lung which rose by more than 3%.Gold prices are diving as the US trading session gets underway. The move lower in gold prices is fueled by a stronger US Dollar and US stock markets being near their all-time highs, lowering the demand for gold. However, the mood may change in the next few hours as the US ISM Non-Manufacturing Index is due.

Technically, gold prices are trading sideways between the October 11 low of $1473.68, and the October 25 high at $1518.41. The benefit of this well-defined rectangle pattern is that when the price finally starts trending the price should hopefully not look back and reach its target. The pattern also provides price targets.

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Hang Seng technical outlook

On the daily chart, the Hang Seng index pared back some of its losses and is now trading at $24,216, which is along the 38.2% retracement level. It is also slightly below the 50-day and 100-day EMA. Therefore, I expect the index to continue rising as bulls attempt to retest the 50-day EMA at $24,488.

On the flip side, a move below the Monday’s low of $23,600 will invalidate this thesis. This price is slightly above the 23.6% retracement and the April 22 low.