Asian stocks declined today following the sharp declines in the United States yesterday. In Japan, the Nikkei 225 index dropped by more than 2% while in Australia, the ASX dropped by more than 2.20%. In mainland China, the Shanghai composite dropped by 1.30% while in Hong Kong, the Hang Seng index dropped by more than 2.30%.
Hang Seng falls in reaction to oil prices
Oil prices is the main reason why US and Asian stocks declined. As we wrote yesterday, oil prices dropped by more than 300% and ultimately turned negative. This was a day before US May futures expired.
The decline to the negative territory essentially means that oil producers will start paying people to own their oil. However, this is not expected to last since June futures are trading above $20 per barrel.
The question therefore is why the Hang Seng declined even though Hong Kong is an oil exporter. The reason is that many oil companies are listed in the Hang Seng index. As oil prices fall, their stock prices decline, leading to the overall index. Another reason is that the global oil industry is a vast one. As oil companies file for bankruptcy, there are chances that Hong Kong economy would be hit.
Hong Kong Extends Lockdown
The Hang Seng index also fell because the government decided to extend the lockdown for another 14 days. This is despite the fact the number of new cases has been declining. In fact, yesterday, the city reported just two cases.
Therefore, because of the trend, experts were expecting the government to reopen the economy this week.
Hong Kong Rate Downgrade
Another reason why the Hang Seng fell is that Fitch decided to downgrade Hong Kong credit rating yesterday. In a statement, the rating agency said that it will take a longer period for the city to recover after the crash. It estimates that the economy will contract by more than 5% this year. Also, analysts expect the city to experience protests in the near term.
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Hang Seng Technical Analysis
The Hang Seng index declined to a low of $23,651, which was the lowest level since April 6. On the four-hour chart, the price is slightly below the 50-day and 100-day exponential moving averages.
It is also slightly below the 38.2% Fibonacci Retracement level, which was drawn by connecting this year’s highs and lows.
Also, the index’s price has moved below the lower resistance line. This means that the price will remain bearish as it attempts to test the 23.6% Fibonacci level at $23,032.
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