Chinese stock indices like the Hang Seng and the Shanghai index will be in the spotlight as the China Party Congress. The Shanghai Composite Index soared by more than 1.8% on Friday and closed the week at 3,073. This price was significantly higher than this week’s low of 2,935. Other global indices like the Hang Seng, Nikkei 225, and DAX have also bounced back.
China Party Congress ahead
This weekend will be an important one for China and the global economy. It will be important because the Communist Pary will host its party congress, which will set the tone for the Chinese economy for the next five years. The event will culminate with the elevation of President Xi Jinping as the head of the party and the country in general.
The China Party Congress comes at an important time for the economy. For one, Shanghai is on the precipice of another lockdown as the number of Covid-19 cases rise. Analysts believe that these lockdowns will push the Chinese economy to have one of the slowest recoveries in the Asian region.
Second, the real estate bubble in the region has effectively burst. Companies like Evergrande are all on life support because of the ongoing deleveraging. Their collapse has led to the crash of many other companies in China such as those that provide them with products. Indeed, home sales in China have crashed for 15 months straight.
Third, the technology sector, which was a key driver of the economy has crashed. For example, companies like Alibaba, Tencent, JD, and Meituan have seen their shares crash in the past few months. As a result, investors have lost trillions of dollars during the sell-off.
The Shanghai index will also react to talk of Common Prosperity, which is Xi Jinping’s plan to build a fair and just society. Also, it will react to the talk about its relationship with the United States.
Shanghai index forecast
The daily chart shows that the Shanghai index crashed to a low of 2,935 as the stock sell-off continued. A look at the chart shows that the index has risen in four straight days. It remains below the 25-day and 50-day moving averages. This price is slightly below the important resistance level at 3,156, which was the lowest level in August.
Therefore, there is a likelihood that the Shanghai Composite Index will continue rising as buyers target the next key level at 3,156. A drop below the support at 3,000 will invalidate the bearish view.