Where Hong Kong and Shanghai Bources Heading?

1 September  2023

Using Google to search about the economy of Hong Kong and China,  we got the following picture

Seven out of the eight news have negative reports about Hong Kong and China's economy except one and only from the Hong Kong Government.   

In that report from the Hong Kong Government.  it pointed out that "real Gross Domestic Product (GDP) (of Hong Kong) grew by 1.5% year-on-year in the second quarter of 2023 after having increased by 2.9% in the preceding quarter. Nonetheless,  the report concluded by saying "the real GDP growth forecast for 2023 has been revised (upwards) to 4.0%-5.0%, from 3.5%-5.5% in May 2023"  

On the other hand,  the Chinese authorities in China have come up with various measures trying to lift the sentiments in the stock market and the business sectors,  including slashing the stock market trading fees. They are also trying to stimulate spending by cutting the bank deposit rate. 

This article will examine how the stock market has responded to all the measures and the propaganda done so far to uplift the market sentiments.

The  Shanghai Stock Market

The Shanghai market was performing pretty well before May 2023 and after China announced the re-opening of its borders in December 2022.  However,  the market soon started to fall apart in early May when there were reports about China's economy not performing as well as expected.  Also,  the retail sales of consumer goods were missing forecasts.  The Industrial output and foreign investment have slowed down.  

During the period between May and June 2023,  we saw the Shangai stock market lose more than 7%.  from 3,395 to 3,150 or about 250 points.  The market recovered a little when China vowed to come out with further measures to bolster the Chinese economy and lift the stock market performance.  These measures include slashing the stamp duties for IPOs,  reducing the stock trading fees, etc.  However,  these measures and efforts did not help much to lift the stock market because there was a slew of bad news about the economy not performing well and continuing to pump out.   

Technically speaking from the Shanghai Index chart shown below,  the Shanghai Index was littered with dead crosses all over (marked in the red circle).   

The more serious one appears to be the large red circle that shows the 20 MA breaking below 50 MA and the 20 MA and 50 MA breaking the 200 MA together at the same time on the same day.  That was just after 14 August  when Country Garden suspended trading in 11 of its onshore bonds with a forecast of USD7.16 billion in losses in the first half.  

The bad news about the bankruptcy filings of Evergrande in the US courts on 19 August further aggravated the market fall sending the Shanghai Index deeper into the red.  

The index tried to make an attempt to recover from the doom drum on 26 August but failed.

If we draw the Shanghai Index using candlesticks,  we can see that the Index struggled but failed to recover on 28 August 2023. That particular candlestick on 28 August covered up 2 candlestick gaps leaving one @ G1 behind to be covered in the future as shown in the following chart.

Given the above scenarios, we are not optimistic that the Shanghai Index will be able to recover from this recent fall and cause a reversal to happen soon. We are expecting the index to have a hard time climbing back to cover the gap at G1. Meanwhile, if the Shanghai index fails to break the resistance R1 @ 3,150 or goes above 20 MA, we are expecting it to seek lower lows that could go below 3.000.

What about Hong Kong HSI?

Presently, we saw HSI mimicking the pattern of the Shanghai stock market. It will aim to test the support trendline T3 if it fails to conquer and go above the resistance at Trendline T2,

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.