The benchmark Hang Seng index is in a slump once again as the Hong Kong and Chinese equities face multiple headwinds. The biggest factor contributing to the prevailing bearish sentiment in the markets is the debt concerns in the property sector.
On Thursday, opened lower amid a piling up of negative news about the property giant Country Garden’s debt situation. Stocks of the real estate firms like Sunac China Holdings and Sino-Ocean Group also tumbled. This resulted in a drop of 436 points in the HSI index which was already trending lower.
The Evergrande situation has made the investors of the Chinese Real Estate sector cautious. This is evident from the recent sell-off in the equities of the property giants like Country Garden. However, there are other factors too which are contributing to the downtrend.
Another major cause of worry for Asian investors is the recently introduced set of rules by the US Commerce Department. The latest restrictions would limit the sale of semiconductors and AI chips to Chinese companies. While this has resulted in a downtrend in the US chipmakers like Nvidia, AMD and Intel, they are also acting as a major headwind for the Hang Seng Index.
The lines that I drew on the HSI chart months ago are still valid. I have added another downward trendline which has been respected since the yearly peak which was market by the index in January 2023. This blue line acts as a dynamic resistance to keep the index in the downtrend.
A breakout from this trendline could be taken as a sign of strength. However, for the Hang Seng Index forecast to flip bullish, I would like to see a breakout above the 18,900 level.
Currently, the index seems to be heading for a retest of the 16,800 support. The upcoming FOMC meeting from 30th November – 1st December may prove to be very critical for global equities.
This post was last modified on Oct 19, 2023, 13:28 BST 13:28