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Hang Seng Stalls at 200MA: Ripe for a Bullish Breakout

Hong Kong stocks have jumped modestly recently as demand for China stocks rallies. The blue-chip Hang Seng index rose to a high of H$19,767, which is close to the highest level since September 1. It has rallied by over 35% from the lowest level this year. 

Why are Hong Kong stocks rising?

The Hang Seng index had a mixed performance in 2022. It was one of the worst-performing global indices in the first part of the year as it crashed by over 42% from its highest level. Recently, the HSI index has risen by over 35%, bringing its year-to-date losses to about 14%.

There are several reasons why the Hang Seng index has recovered. First, Hong Kong stocks were among the cheapest in the industry. This discount happened as investors considered multiple factors like the tough regulatory state in China, Covid lockdowns, and the real estate crisis. As a result, embattled tech companies that have strong fundamentals were selling at a significant discount vs peers.

Second, the Hang Seng index has recovered because of the ongoing China reopening. Beijing has started easing its zero-Covid strategy that was slowed down businesses. The strategy involved regular testing, contact tracing, and mandatory quarantines. 

Third, the real estate sector seems like it will survive the liquidity crisis. The Chinese government has worked behind the scenes to prevent a major collapse of the sector. As such, as you will see below, real estate companies like Wharf became some of the top risers in the index.

Hang Seng risers and fallers

Most of the Hang Seng constituent stocks were in the red in 2022. The biggest gainers were Sands China, Galaxy Entertainment, and China Sands, which are all casino stocks. Their shares jumped by more than 20% as Macau eased its Covid restrictions. Other top performers were Wharf Real Estate, China Resources Land, and Budweiser. All these shares rose by over 10% in 2022.

On the other hand, Sunny Optical, Country Garden, Geely, and Wuxi Biologics were the top laggards as their shares fell by over 40%. Notable names like Xiaomi, Lenovo, Tencent, Baidu, and Alibaba also slumped in 2022.

Hang Seng forecast

The daily chart shows that the Hang Seng index has staged a strong recovery in the past few days. In this period, it has managed to rise above the 50-day and 100-day moving averages. It has now faced substantial resistance at the 200-day MA. The Relative Strength Index (RSI) has started forming a bearish divergence pattern.

Therefore, a clear break above the important resistance point at 20,000 will signal that buyers have prevailed. Such a move will see the index have a bullish breakout, with the next key resistance level being at $22,000. 

Hang seng