Hang Seng Left in the Dust. Is it a Good Contrarian Buy?

Summary:
• The Hang Seng index remained under pressure even as its American counterparts like the Dow Jones and Nasdaq 100 staged a strong recovery.

The Hang Seng index remained under pressure even as its American counterparts like the Dow Jones and Nasdaq 100 staged a strong recovery. It was trading at H$16,700, which was slightly above its lowest level this year. This price is the lowest it has been since October 2011. It has plummeted by 50% from its highest point in 2021. Similarly, the Shanghai Index continued retreating.

John Lee new policies

The Hang Seng index has become one of the worst-performing major indices in the past few years. This decline can be traced to the protests that happened in Hong Kong in 2019. They were followed by more protests in 2020 that pushed China to implement the National Security Law. The index continued this year as the HKMA and other global central banks hiked interest rates aggressively.

The Hang Seng index has continued falling after the maiden speech by John Lee, the new Chief Executive. In it, he laid out plans for coming out of the Covid shadows. His government will remove most Covid measures in a bid to attract foreigners again. Analysts believe that this is policy will likely have a positive impact on Hong Kong’s property sector. He also announced a plan to attract top foreign students.

The HSI index has struggled because of China’s Covid strategy. In this week’s China Party Congress, Xi Jinping said that the Covid-zero strategy was the right one. As he said that, several municipalities announced new lockdowns. This is notable for the Hang Seng since it is primarily weighted towards the Chinese market.

Still, some analysts believe that the Hang Seng index is a good buy for the brave. For one, it has a PE ratio of 9, which is much lower than that of other key indices like the Nasdaq 100 and Nikkei 225.

Hang Seng forecast

The daily chart shows that the Hang Seng index has been in a strong bearish trend in the past few years. In this period, it has crashed below the important support at $18,259. It has also moved below all moving averages while the Relative Strength Index (RSI) has moved slightly above the oversold level.

At this stage, the path of the least resistance for the index is lower, with the next key support level being at H$16,000. A move above the resistance point at $17,000 will invalidate the bearish view.