- Summary:
- The Hang Seng index crusied past key resistance level as the Hong Kong government prepared to bailout Cathay Pacific, the flagship carrier
The Hang Seng index was among the best-performing indices in Asia today. The index, which is in its seventh day of gains, rose by more than 1.66% and is now trading at $25,184. It is also in the midst of the longest rising streak in 14 months as investors hope for recovery of the economy.
Cathay Pacific rescued by Hong Kong government
Shares in Swire Pacific were halted today as the company prepared to make a major announcement. Swire is the largest owner of Cathay Pacific, the main airline company in Hong Kong. Air China is the other substantial investor with a stake worth almost 30%.
The company will now receive about $5.2 billion from the government in exchange of expanded shareholding. Also, the company will create two extra slots on its board to accommodate the government, which will become a major shareholder. Surprisingly, the new funding is more than the company’s total market valuation, which means the government could have bought the company outright.
The decision by Carrie Lam’s administration to invest in a private company comes at a time when the company is going through challenges. Lats year, it made a loss due to the persistent riots and this year, it made more than HK$4.5 billion loss in the first quarter due to the pandemic. The government wants the company to remain in existence in a bid to preserve Hong Kong as a major transport hub.
Security law to bring peace
The Hang Seng index has also been rallying because of the security law. Analysts believe that most protesters in Hong Kong will be afraid to go to the street as they did a year ago. That is because with the law, Chinese intelligence and military officials will be present in the city. Indeed, several of the biggest businesses in Hong Kong like Standard Chartered, HSBC, and HK have announced that they support the law.
Biggest gainers and losers in Hang Seng
The biggest gainers in the Hang Seng were China Mengniu dairy, Sands China, Wharf Real Estate, China Life Insurance, and Geely Automobile. All of these gained by more than 4%. On the other hand, the only laggards were Hang Lung, AAX Technologies, HSBC, and Hang Seng Bank.
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Hang Seng technical outlook
On the daily chart, the Hang Seng index moved above the 50% Fibonacci retracement level. It is also above the 50-day and 100-day exponential moving averages while the RSI has been on an upward trend. Therefore, the index will likely continue rising as bulls target the 61.8% retracement level at $26,000.
On the flip side, a move below the 38.2% Fibonacci retracement level of $24,220 will invalidate this trend. This price is also along the 50-day exponential moving average.