Hang Seng is Flourishing: What Next After the 40% Rebound?

Summary:
• The Hang Seng index jumped to the highest level since July as it diverged from its American counterparts. What next for the index?

• The Hang Seng index surged to the highest point since July as it diverged with its American peers.
• Country Garden, Alibaba Health Information, and Longfor Properties led the charge.
• Sunny Optical, Tingyi, Orient Overseas, and Nongfu Spring were the top laggards.

The Hang Seng index (INDEXHANGSENG: HSI)  jumped to the highest level since July as it diverged from its American counterparts like the Dow Jones and the Nasdaq 100 index. The index spiked to a high of H$20,622, continuing gains that started in the first week of November. It has rallied by 41% from the lowest point in 2022, making it a shining star in a dark world of global stocks. Other Chinese indices like the Shanghai Composite and China A50 also rallied on Wednesday. In Japan, the Nikkei 225 index pulled back by 1.2%.

HSI index top drivers

The Hang Seng index has rallied in the past few months as investors cheer the decision by China to  end its Covid-19 restrictions. Leaders of both Hong Kong and Mainland China decided to ease most of the restrictions they had last year. For example, they ended quarantine measures that forced arrivals to move to a hotel for quarantine. These measures hurt the country since most people avoided it. Therefore, analysts believe that easing of these rules will stimulate the economy.

The Hang Seng index has also risen because of the comeback of the real estate sector. While the industry has shrunk, measures by Chinese authorities have prevented a complete collapse of companies in the sector. As such, shares of companies like Country Garden and Longfor Properties have surged by more than 100% from their lowest levels in 2022. Country Garden and China Resources Land have also rallied by double digits.

The HSI index has also rallied because of the technology sector. It seems like Chinese authorities are slowing down on their crackdown of the sector. This explains why tech companies in the HSI index have done well. They include firms like Alibaba, Baidu, Meituan, Tencent, and Baidu. Another catalyst for the index is that it was extremely cheap compared to its global peers.  Alibaba shares after a China regulator agreed a fundraising proposal by Ant Financial.

Hang Seng index forecast

I called the Hang Seng bottom a few months ago. In this article, I wrote that it was a good buy but only for brave investors. These brave investors are now reaping the benefits of buying the dip. Turning to the 4H chart, we see that the Hang Seng index has done well in the past few months. It has moved above upper side of the Bollinger Bands and the 25-day moving average. It is also above the Ichimoku cloud while the Stochastic Oscillator has moved to the overbought level.

Therefore, the outlook for the index is bullish at this point, with the next key level to watch being at $22,000. A drop below the support at $19,500 will invalidate the bullish view.