The Hang Seng index declined by almost 5% as mood in the region worsened during the weekend. The index was closed on Thursday and Friday as the city marked the birthday of Buddha and Labour Day holidays.
Hong Kong stocks fall as US and China tensions rise
The Hang Seng decline was mostly because of the rising tensions between the United States and China. The two countries have been trading accusations on the cause of coronavirus in the past few weeks. The accusations rose during the weekend when US Secretary of state, Mike Pompeo said that there was “enormous evidence” that the coronavirus started in a Chinese laboratory.
In an interview a week before, he said that the US was looking at whether the virus came from the virology lab in Wuhan. Still, he did not offer any evidence to back his claims.
Donald Trump has made similar claims in the past. In a statement on Thursday, the president said that he had seen intelligence to back these claims but he was not permitted to share it.
China has vehemently denied these claims. In a statement released last week, the lab at the centre of the claims called the claims “malicious.” The director said, “The WIV does not have the intention and the ability to design and construct a new coronavirus. Moreover, there is no information within the SARS-CoV-2 genome indicating it was manmade.”
The risk for these tensions is that they could lead to a new trade war, which will come a few months after the two countries made a truce.
Hang Seng index falls as Macau casinos brace for losses
Another reason why the Hang Seng index declined was that neighbouring Macau was hailing. In a statement released last week, a group of casino operators from the region said that gaming revenue had declined by 97% from a year before. This was the worst decline on record and came as a result of the travel restrictions put in place recently. According to Bloomberg, while most casinos have reopened, their operations have been almost empty.
Hong Kong is usually affected by business activity in Macau because of it is usually viewed as a direct entrance to China by most investors. Also, most gamers spend their winnings in the city.
Hang Seng Index biggest winners and laggards
All companies in the Hang Seng index declined today. Among the biggest losers were PetroChina, whose stock declined by more than 8.90%. It was followed by China Petrol & Chemical, Citic Pacific, and CNOOC, which fell by more than 7%. Casino operators like Sands, Sunny Optical, and Shenzhou International dropped by more than 4%. The better performers in the Hang Seng index were BOC Hong Kong, CK Infrastructure, and CK Asset, which dropped by more than 1%.
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Hang Seng technical outlook
On the four-hour chart, we see that an important thing happened today. The Hang Seng index declined to a low of $23,668 today. As it did this, the index moved below the 50-day exponential moving average and below the important green trendline showed below. Also, we see that the index struggled to reach the 50% retracement level at $25,165 in April. Therefore, this implies that there are still sellers in the market. As such, now that the index has moved below crucial support, I expect bears to attempt to retest the April 16 low of $23,462.
On the flip side, this thesis will be invalidated if the index moves above the 50-day EMA and the 38.2% retracement level at about $24,216.
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