Hang Seng, China, China Slowdown, Federal Reserve – Talking Points
- Hang Seng Index falls below the 50-day moving average as shares continue to slide
- Fears over China’s economic slowdown continue to weigh on sentiment
- Covid cases in mainland China cause school closures; local breakouts continue
Shares in Hong Kong remain under pressure as fears over China’s economic slowdown continue to plague near-term prospects. Equity markets in Hong Kong and the mainland came under pressure on Monday as Beijing halted classes at various schools due to rising COVID cases. China’s recent adoption of the “Covid Zero” plan has limited foreign visitors, and market participants are beginning to worry about the drag that the limited interaction may have on the economy. Over the last few weeks, various Chinese companies have highlighted Beijing’s coronavirus policies as the main impediment to strong quarterly performance.
Shares of the Hang Seng Index gave back gains of 1.9% to finish lower by 0.22% on Monday. The Hang Seng Tech Index, a subcomponent of the main index, gave back gains of 4% to close just 0.6% higher. Tech shares in Hong Kong have struggled over the last few months as Beijing has cracked down on education and gaming equities. With a significant divergence in the performance of US and Hong Kong based tech shares becoming apparent, opportunities may arise for traders in the form of a “catch-up” trade.
Hang Seng Index Daily Chart
Chart created with TradingView
Market participants will now likely look to central bank policy as a determinant of near-term sentiment. Wednesday will see the Federal Reserve interest rate decision, with the potential announcement of a taper of asset purchases. With the US set to begin normalizing policy, the PBOC may have to remain flexible with its policy approach, given the slew of headwinds facing the country. Stress in the property sector, energy shortages, and buoyant commodity prices have hampered economic activity of late. These headwinds have placed the region’s major indices under pressure of late and may continue to do so unless pressures begin to alleviate.
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— Written by Brendan Fagan, Intern
To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter