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Here’s why the Hang Seng has just been punched in the face

Hang Seng

The Hang Seng index declined by more than 1.70% today as investors continued to reflect on the Fed decision. Real estate stocks were among the worst-performing Hong Kong stocks today as investors reacted to a new report by South China Morning Post.

Sweet days gone for Hong Kong real estate

About a month ago, I wrote about the coming bursting of Hong Kong’s commercial real estate bubble. Now, more evidence is coming out about the perils of the industry. According to SCMP, vacancy rate in the commercial real estate sector rose to the highest level in over a decade.

The paper estimates that about 1.1 million square feet of space in the CBD has been vacated by businesses. This is equivalent to an entire HSBC building. As a result, real estate companies are among the worst-performing stocks in the Hang Seng today.

The vacancy rate has been affected by two main things. First, last year’s protests led many companies to fail or move their offices to other cities like Singapore. Second, this year’s coronavirus pandemic has lowered demand for space in the city. Two of the notable companies that have left or downsized their presence in the city are Expedia, Macquarie Bank, and the company behind League of Legends. Worse, the worst is not yet over. Experts expect that about 305 of large businesses will surrender their listings in the coming few months.

This decline could be the reason why many real estate tycoons in the city have embraced the security law that is being drafted in Hong Kong. They expect the law to help bring law and order. But some businesses that set their offices in the city could leave because of the law.

Hang Seng best and worst performers

Most companies in the Hang Seng index were in the red today. Notable losers were CK Asset, whose shares dropped by more than 2.72%. This decline is partly because the company is still marketing about 230,000 square feet of space at the Cheung Kong Centre. Another notable loser was Henderson Land, whose shares dropped by more than 3.60%. This is partly because its income from the office sector has dropped by more than 10%. Other top losers were casino operators like Sands China and Galaxy Entertainment.

On the other hand, the only Hang Seng companies in the green were CLP Holdings, Tencent, and HKEX.

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Hang Seng technical outlook

The Hang Seng index tumbled today and is trading at $24,552, which is lower than this week’s high of $25,313. On the daily chart, the price has just moved below the 100-day exponential moving averages. It is slightly above the 50-day EMA. This decline comes after it formed an inverted hammer pattern yesterday. As such, it means that bears have prevailed, which will likely see the index continue falling as bears target the 38.2% retracement at $24,223.

On the flip side, a move above this week’s high of $25,313 will invalidate this trend.

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