- Summary:
- Hang Seng index rose today as the government announced plans to reopen the economy. There are still concerns about protests which could derail recovery path
Hang Seng index rose by more than 1% as the government started to ease restrictions on movements. This happened as the number of coronavirus cases started to wane in the city.
Hong Kong starts reopening
Hong Kong has done relatively well in managing the coronavirus crisis. The city has confirmed just 1,038 cases and four deaths. This is a remarkable fate for a city that is closer to mainland China than New York.
In a statement today, Carrie Lam, said that the city would start reopening methodically. She added that most of the 180k government employees would stop working from home and resume to their offices. She also said that the mass transit would resume operating this week. However, social gatherings such as concerts will still be banned to prevent secondary transmissions.
The news from the government was a positive thing for companies, most of which have been decimated by the crisis. For example, many retailers have complained about the low activities in their shops.
Hang Seng could be affected by protests
As Hong Kong reopens, protests are a major source of concern among investors. In the past few weeks, the government has arrested several pro-democracy protestors, raising the probability of more protests. As you recall, these protests caused the economy to shrink by 2.9% in 2019.
The protests were cited by Fitch, when it downgraded the economy last week. In the statement, the ratings agency said:
“The anti-government protests, which grew increasingly violent in late 2019, appear to have temporarily receded amid the health crisis. At the same time, Hong Kong’s deep-rooted socio-political cleavages remain unresolved, in Fitch’s view. This injects lingering uncertainty into the business environment, and entrenches the risk of renewed bouts of public discontent.”
Hang Seng Best and Worst Performing Stocks
Most stocks in the Hang Seng index were in the green today. The biggest gainer was Wharf Real Estate, which owns a number of shopping malls in the city. Its stock rose by 2.58%. Another big gainer was MTR, which operates the mass transit system. As the city normalises, the company will start seeing more income. HSBC was another big winner after the bank announced its first quarter earnings earlier today. Its pre-tax profit declined by 48% to $3.2 billion. Only thirteen stocks in the index were in the red.
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Hang Seng technical outlook
On the four-hour chart, the Hang Seng index rose to a high of $24,511, which is a few points below the monthly high of $24,683. The price is slightly above the 50-day exponential moving averages and the 38.2% Fibonacci retracement level. The trend is being guided higher by the green trend line.
This Fibonacci was drawn by connecting the YTD high and lows.
Therefore, I expect that the bullish trend will remain as bulls try to test the 50% retracement level at $25,165. Before this, bulls will need to defend the previous support of $24,701, which was the highest level in April. This trend will remain so long as the price is above the support at $23,462, which is the lowest swing on April 22.