The Hang Seng index continued its bullish recovery this week as investors reflect on the Chinese reopening and the outlook of the new year. It jumped to a high of H$21,226, the highest level since June 11. It has rallied by more than 45% from the lowest level in December. The Shanghai Index and China A50 and the Chinese yuan have also surged recently after China reopened its borders and ended its Covid-19 restrictions.
China economic recovery
The main catalyst for the Hang Seng index was the recent announcement by the Hong Kong and Mainland government that it will end its Covid-19 restrictions. For the most part of the past two years, China has been locked down in a bid to prevent Covid-19. As a result, it was difficult for most businesses to work and be productive. As a result, data published this week showed that the country’s manufacturing contracted for the fifth straight month. It came in at 48.8, which was lower than the previous increase of 49.4.
The services sector also continued to worsen. Data by Caixin and S&P Global showed that the services PMI rose to 48.3 in December. A PMI figure of 50 and below is usually a sign that an economy is in a contraction mode. Hong Kong has been worse. At the same time, many companies are currently scrambling to leave China as tensions with the western world worsens. Companies like Apple and Nike are actively looking for alternative sources of manufacturing.
The Hang Seng index has therefore rallied as investors price in the upcoming recovery of the Chinese economy after the restrictions were lifted. Another catalyst is that the real estate sector has not imploded as analysts were expecting when Evergrande started collapsing. In a statement this week, Evergrande vowed to pay its debt in 2023. The CEO also vowed to conclude the delivery of projects in the coming year.
This explains why property groups in the Hang Seng like Longfor and Country Garden have seen their shares surge recently. Other top performers on Friday were China Resources Land, Tencent Holdings, Xinyi Glass, China Overseas, HSBC, Ping An Insurance, and Budweiser.
Hang Seng index forecast
The daily chart shows that the Hang Seng index has made a strong recovery in the past few months. As it rose, it has managed to cross the important 200-day moving average. And its golden cross with the 50-day moving average is yet to form. The index has also seen its Stochastic Oscillator moved to the overbought level. Therefore, like I wrote earlier this week, I suspect that the Hang Seng index will continue rising as buyers target the key resistance level at H$22,500. A drop below the support at $20,000 will invalidate the bullish view.
