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Hang Seng: Is the Hong Kong Property Bubble Bursting?

The Hang Seng index pared earlier losses and is now up by 0.30%. This makes it the best-performing index in the region since the Shanghai and KOSPI have gained by less than 15 basis points. In Japan, the Nikkei 225 index has declined by more than 0.50%. The Hang Seng is gaining even as questions remain about the city’s real estate sector.

Hong Kong real estate sector in trouble

A few weeks ago, I wrote about the imminent bursting of the Hong Kong property bubble. Now, there is evidence that many real estate companies will find it difficult to survive.

A report by South China Morning Post (SCMP) paints a dark picture of the city’s property sector. The writer cites the prestigious Russel Street in the city’s Causeway Bay. Just a year ago, this was the most luxurious shopping street in the world. It hosted all the main leading luxury brands, including Prada, Gucci, and Tissot among others. These companies used to pay more than H$200,000 every month in rent.

Today, some of these tenants have disappeared even as the landlords lower their rent. Most stores have remained unoccupied after the previous high rollers left. Other stores have been taken up by small unknown brands. For example, a phone accessory shop now occupies a store that was previously owned by Tissot, the luxury watch company.

At the same time, property foreclosures have continued to increase. The paper writes that the number of foreclosed properties has been on an upward trend and is nearing its highest level in a decade. This could lead to a significant challenge for Hong Kong developers, who have emerged to support the controversial security law.

Top movers in Hang Seng

Most companies in the Hang Seng are in the green today. The best-performer is Sino Biopharmaceutical whose shares rose by 3.83%. It was followed by PetroChina, CSPC Pharma, China Mengniu Dairy, and China Resources Land. These shares rose by more than 2%.

On the other hand, the worst performers are Wharf Real Estate, Citic Pacific, Sunny Optical, and Shenzhou International. These firms have dropped by more than 1%.

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Hang Seng technical outlook

The Hang Seng index is trading at $24,420, which is slightly below the yesterday’s high of $24,520. On the daily chart, the price is above the 50-day exponential moving average and slightly below the 100-day EMA. The price is also slightly above the 38.2% Fibonacci retracement level and is also above the ascending trendline. The index may continue rising as bulls attempt to test the 50% retracement at $25,168.

On the flip side, a move below the important support at $23,500 will invalidate this trend. This price is an important psychological level and is also along the ascending trendline.