The strong Hang Seng (HSI) index comeback has taken a breather amid rising tensions between the US and China. After soaring to H$22,667 in January, the index has retreated by ~7.45% to about H$21,123. It remains ~45% above its lowest point since November last year.
Rally takes a breather
Hong Kong stocks made a spectacular comeback in the fourth quarter as the number of catalysts rose. First, after a year of lockdowns, Hong Kong and mainland China started to reopen. Hong Kong, Shanghai, and other Chinese cities are now moving towards normalizing, which is expected to boost their recovery.
Second, the real estate sector has held quite well, helped by the strong support by local governments. Indeed, Evergrande’s share price has risen by about 41% from its lowest point in 2022. Other property giants in the Hang Seng like China Resources Land, Hang Lung, and Henderson Land have done well in the past few months.
Third, it seems like Beijing is easing its crackdown on big tech companies. As a result, some tech stocks in the index like Tencent and Xiaomi have done well. Others, however, like Alibaba, JD, and Meituan have plunged by ~21%, ~17%, and 13% in the past 30 days, respectively.
Recently, however, the Hang Seng index rally has faded, amid rising concerns about the Federal Reserve and tensions between the United States and China. The Fed hiked interest rates by 0.25% in its first meeting of the year and pointed to more hikes after the strong non-farm payrolls numbers. Therefore, the upcoming US inflation numbers will have an impact on the Hang Seng and other indices.
Meanwhile, tensions between the US and China have risen in the past few days. The US shot down a Chinese spy balloon. It also shot several other UFOs last week. Therefore, there are chances that relations, which were previously improving, are now downshifting. According to Bloomberg, Antony Blinken and Wang Yi will likely meet later this week at the Munich security conference.
Hang Seng index forecast
Hang Seng chart by TradingView
The Hang Seng index pulled back after reaching a high of H$22,780 in January. This was an important price since it was along the 50% Fibonacci Retracement level. In most periods, asset prices tend to either consolidate or pull back after reaching this level.
The index has formed a golden cross pattern, which happens when the 200-day and 50-day moving averages crossover. Therefore, despite the pullback, it seems like it is good to buy the Hang Seng index dip now that it is at the 38.2% retracement level. Such a comeback will push it above the resistance point at H$22,780.
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