Hang Seng index: Hong Kong stocks slide as fresh risks emerge

Hong Kong stocks declined today as the market grew concerned about the new wave of coronavirus pandemic in China, Germany, and South Korea. The Hang Seng index declined by almost 2 per cent, becoming the worst-performing index in the region. The Shanghai, Nikkei, and A50 dropped by 0.60%, 0.20%, and 0.40% respectively.

Hong Kong stocks falls on coronavirus fears

Yesterday, China announced that it had identified five new cases in Wuhan, the province where the disease started. This news sent shockwaves in the financial market because it increased chances of a second wave of the disease. Worse, the news came in a day when Germany and South Korea recorded new waves.

What is the risk for the Hang Seng? The biggest risk is that the new wave of infections will lead to more shutdowns that will affect the global economy. For Hong Kong, it means less flights and lower retail sales for the city. As we reported last week, the bubble in the housing market of the region has started to pop.

Further, it raises the probability of more government support, which will lead to a wider budget surplus at a time when the city has received a credit rating downgrade.

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Hang Seng index technical outlook

On the four-hour chart, we see that the Hang Seng index has been on a slow upward trend since March. The index reached a high of $24,838 on 28th April. Today, the Hang Seng has declined close to the 50-day exponential moving average. It is also slightly below the 38.2% Fibonacci retracement level and slightly above the pink trendline shown below. Therefore, a move below this trendline will mean that there are more buyers in the market. As such, these buyers may be keen to push the price lower to the 23.6% retracement level at $23,000.

On the other hand, a move above the 100-day EMA level of $24,000 will invalidate this thesis because it will signal that there are more buyers in the market.

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