Today, China and Hong Kong benchmark stock indices experienced lacklustre movement following the release of Premier Li Qiang’s economic work report during the “Two Sessions.” Premier Li Qiang announced a GDP growth target of around 5% for China in 2024, which was in line with consensus. Despite the targeted stimulus measures to achieve this economic growth target, the lack of fresh positive catalysts may potentially reverse the four weeks of rally seen in these stock indices. The Hang Seng Index is showing signs of a potential “bearish flag” with a downside trigger level at 16,080.
China and Hong Kong’s stock markets have recently shown resurgence, becoming the top-performing stock market in February. Indices like the CSI 300 and Hang Seng Index recorded monthly gains of +9.35% and +6.63%, respectively. Other related indices, such as the Hang Seng TECH Index and Hang Seng China Enterprises Index, also outperformed their US counterparts in local currency terms. This outperformance has been largely attributed to policies targeting the trading mechanism, including restrictions on high-frequency trading and short selling.
Despite the recent market rally, the long-term secular bearish trend of the CSI 300 and Hang Seng indices, which began in February 2021, remains intact. The deflationary risk in China’s economy, coupled with a negative wealth effect from the property market slump, poses significant challenges. Premier Li Qiang’s economic work report did not offer any fresh positive catalysts to address these underlying issues, indicating that the current uptrend in stock indices may be short-lived.
Analyzing the technical indicators of the Hong Kong 33 Index, a proxy for the Hang Seng Index futures, reveals a potential “bearish flag” pattern. The recent upmove appears to be a countertrend rebound, as indicated by the bearish momentum breakdown in the daily RSI momentum. A breach above 16,670 could reverse this bearish tone and lead to a near-term resistance level around 17,010/130. However, the overall trend remains bearish, with key levels acting as resistance barriers.
Premier Li Qiang’s economic work report may have limited impact on the medium-term outlook for China and Hong Kong stock indices. The lack of fresh catalysts to address underlying economic challenges, coupled with technical signals of a potential trend reversal, suggest a cautious approach towards investing in these markets. Traders and investors should closely monitor key support and resistance levels to navigate the current market conditions effectively.
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