The Hang Seng index, Hong Kong’s stock exchange, rebounded sharply on Monday after less than weighty measures announced by US President Trump over China’s new national security law. However, the US government has stripped the region of its special trade status, and this could have significant implications for the area as a financial hub. There is also talk that the long-standing peg between the US Dollar and Hong Kong Dollar could dissolve amid the crisis.
As the battle to salvage the region’s status as a financial hub hits fever pitch, Hong Kong’s Finance Secretary Paul Chan declared on Monday that there were no plans by the HK administration to alter the Hong Kong Dollar’s peg with the US Dollar. He expressed confidence that the exchange rate would continue to be defended, and has indicated that the capital inflows and outflows would be maintained.
The Hang Seng index plunged 6.83% in May 2020 as a result of the crisis initiated by the passage of the new law, which Beijing says will enable it to bring calm and tranquillity to the region so that business could continue like before. Experts maintain that capital inflow from Beijing could be critical in maintaining the financial integrity of the capital market and enable the government to maintain the currency peg.
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Technical Outlook for Hang Seng Index
A volatile start to the week in the early Asian session saw the Hang Seng claw back on last week’s losses with gains of 3.31% to trade at 23719.1, just shy of the resistance at the 23980.8 price level formed by the previous 19 September and 11 October 2016 and the lows of 3/18 April 2017). If the Hang Seng index sustains the price recovery and can breach this resistance, this opens the door towards 24658.2 (lows of 22/29 October 2018 and highs of 14 April and 11 May 2020). 25335.7 remains a valid upside target if prices advance further.
On the flip side, failure to take out 23980.8 could initiate a resumption of the selloff, which targets the previous support at 22400.0, with 21609.7 remaining a strong medium-term resistance.
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