Hang Seng Declines Further As Chengdu Lockdown Kicks In

Summary:
• The Hang Seng index futures are down for a 9th day in a row, as the negative impact of the new China lockdowns permeate the market.

The Hang Seng index futures asset has started trading on a lower footing following Tuesday’s 0.72% drop. This puts the Hang Seng index on course for a 9th straight day of losses as the impact of the lockdown of the Chengdu province bites home. 

China instituted the lockdown on 1 September to contain a new COVID-19 outbreak in the area in pursuance of its zero-COVID policy, which has served to sour sentiment around the stock markets in the mainland and in Hong Kong. The lockdown did not allow the indices any time to recover from the underwhelming manufacturing PMI data released last week.

On 30 August, the Caixin Manufacturing PMI data fell from 50.4 to 49.5. Tuesday’s trade balance data also showed a drop in the Chinese trade surplus. The Hang Seng index also sees negative sentiment following Wednesday’s reported conviction of speech therapists accused of writing seditious children’s books.

This and the arrest of the head of the Hong Kong journalists’ union continues to cast a shadow on freedom of speech in the administrative region. The passage of a National Security Law in 2020 sparked global outrage and forced the US government to withdraw some trade privileges the island had previously enjoyed. 

Hang Seng Index Forecast

A breakdown of the 19110 support invalidates the falling wedge’s bullish outlook, turning the return move into a downtrend continuation. This breakdown move targets 18127 initially (15 February 2016 and 16 March 2022 lows), leaving 17082 as the additional downside target if the bulls fail to defend the 18127 pivot. 

On the other hand, a bounce on the 19110 price mark allows for a rejection of the return move and a push toward the 19800 resistance mark (25 April and 17 August lows in role reversal). A break above this level puts the bulls on course to attain the 14 June low/29 August high at 20572. If this resistance is uncapped, 20969 becomes the next upside target, being the site of the 4 May and 26 July highs. 22034 and 22473 (4 April and 28 June highs) are additional upside targets. 

Hang Seng: Daily Chart