Hang Seng Index: Traders Watch Beijing Stimulus, Trade Talks – Weekly Recap

Hang Seng Index: US-China Trade Deal Optimism Boosts Sentiment

The Hang Seng Index extended its winning streak to three weeks as the US and China prepared for the third round of high-level trade talks. Speculation about fresh stimulus added to the upbeat mood toward the Chinese economy.

Mainland China markets extended their winning streaks to five weeks. Recent economic indicators, including trade and GDP data, were robust. With a potential US-China trade deal and fresh stimulus, Beijing’s 5% GDP growth target remains in sight, lifting demand for Mainland-listed stocks.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero recently remarked on the potential for more stimulus, stating:

“Recent comments by top Chinese economic officials suggest they realize something needs to be done. How much is action versus words, I don’t know. But I do think it’s a big problem for China.”

Hong Kong and Mainland Markets Outmuscle the Nasdaq

The Hang Seng Index rose 2.27% in the week ending July 25, following the previous week’s 2.84% gain, closing at 25,388. Mainland China’s CSI 300 and Shanghai Composite Index ended the week up 1.69 % and 1.67%, respectively.

US equities also posted gains in the week but still trailed the Hang Seng and Mainland China indices. The Nasdaq Composite Index and the S&P 500 climbed 1.02% and 1.46%, respectively, while the Dow advanced 1.26%. Corporate earnings and upbeat US economic data boosted risk appetite.

Notably, Alphabet Inc. (GOOGL) ended the week up 4.39% after topping earnings estimates in the week.

Hong Kong Real Estate and Tech Stocks Shine

Real estate stocks rebounded in the week on hopes for fresh measures to bolster the Mainland’s real estate market. The Hang Seng Mainland Properties Index rallied 3.7% in the week. Longfor Group (0960) and Shimao Group (0813) jumped 4.58% and 4.82%, respectively, contributing to the gains.

Electric vehicle (EV) and tech stocks also posted solid gains. Tech giants Baidu (9888) and Tencent (0700) climbed 3.02% and 6.07%, respectively. Meanwhile, BYD (1211) and Geely Auto (0175) rose 2.53% and 2.85%, respectively.

Concerns about a weaker external demand outlook, which could fuel domestic competition and price wars, capped gains across EV shares. Beijing announced plans to tackle price wars impacting corporate profits, the labor market, and consumer demand.

CN Wire reported:

“China’s NDRC (National Development and Reform Commission) seeks feedback on draft amendments to China’s price law. To strengthen regulation of pricing practices by business operators. To improve dumping standards, regulate market pricing, and curb cutthroat competition.”

The prospect of lower tariffs and measures to ease pressures on company profits suggests a bullish outlook for HK and Mainland China-listed stocks.

US Economic Data Signals a Robust Economy

US labor market and services sector data signaled strong economic momentum midway through the third quarter. Initial jobless claims unexpectedly fell from 221k (week ending July 12) to 217k (week ending July 19). A stable labor market may bolster wage growth, potentially fueling consumer spending. Given that private consumption accounts for over 60% of the US GDP, a resilient labor market is crucial for the economy.

The S&P Global Services PMI increased to 55.2 in July, up from 52.9 in June, signaling a sharp pickup in services sector activity. July’s numbers added to the positive sentiment about the US economy since the sector contributes around 80% to the US GDP.

However, the data may also pressure the Fed to delay rate cuts. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, remarked on price trends across the US private sector, stating:

“The rise in selling prices for goods and services in July, which was one of the largest seen over the past three years, suggests that consumer price inflation will rise further above the Federal Reserve’s 2% target in the coming months as these price hikes feed through to households.”

Rising consumer prices and a more hawkish Fed policy stance could increase borrowing costs, impacting corporate profits and share prices.

Hang Seng Faces Key Test Between 25,000 Support and 26,000 Resistance

Hopes for a US-China trade agreement and Beijing’s continued support through stimulus sent the Hang Seng Index to a weekly high of 25,736, its highest level since November 2021. Despite easing back, the Index held above the crucial 25,000 level and traded well above its 50-day Exponential Moving Average (EMA), indicating bullish momentum.

Progress toward a US-China trade or Beijing’s stimulus measures could drive the Hang Seng Index above last week’s high of 25,736, bringing 26,000 into play. A sustained move through 26,000 may open the door to 27,000.

Conversely, stalled talks and a lack of policy support could send the Index toward 25,000, exposing 24,500 and the 50-day EMA.

Hang Seng Technical Forecast

• Resistance: 25,736, 26,000, and then 27,000.
• Support: 25,000, 24,500, and 50-day EMA at 24,060.
• Short-term Bias: Bullish, contingent on a US-China trade deal, dovish Fed cues, and fresh stimulus from Beijing.

Forecast Summary

The Hang Seng continued to trade well above its July congestion zone and 50-day EMA, indicating a bullish bias. In the week ahead, sentiment will hinge on trade talks, China’s private sector PMIs, and any new policy signals from Beijing. However, the outcome of US-China trade talks will be crucial for market trends.

For real-time updates on US-China trade talks, global stimulus efforts, and central bank signals, follow our live coverage and consult our economic calendar.