Surely the Hang Seng Index (HSI), which has been on a downtrend since February 2023, is ready for a Chinese New Year rally, or at the very least, a pretty good dead cat bounce.
According to a note by a local research house, the HSI dropped 3.71% on Jan 17, reaching a one-year low of 15,276.9. In terms of declines, the Jan 17 session ranks as the 15th worst daily move since 2019, the note says.
Strangely, Jan 17 was also the day when Premier Li Qiang announced China’s economy grew by “around 5.3%” in 2023.
UOB Global Economics & Market Research says China’s 4Q2023 GDP growth was in line with expectations at 5.2% y-o-y. “On a seasonally adjusted basis, GDP rose at a more moderate 1.0% q-o-q compared to 1.5% q-o-q in 3Q2023. Nominal GDP growth remained below the real growth rate at 3.7% y-o-y in 4Q2023 as deflationary pressure continued to exert broadly across China’s economy,” the UOB report details.
For 2023 as a whole, China’s real GDP expanded by 5.2% which was also in line with consensus forecast and slightly exceeded the official growth target of “around 5.0%”. “It has been speculated that China may set its growth target for 2024 similar to 2023 to boost investors’ confidence,” UOB says. The UOB forecast for 2024 is a modest 4.5%.
The Year of the Dragon hasn’t started so there is still time for investors to pile into China. However, following the data out of China, the HSI fell sharply. Increasingly, the Hong Kong market is viewed as a barometer for mainland stocks and indices.
See also: STI steadies despite overbought US markets and rising US risk-free rates
Locally, reflecting the decline of mainland stocks, the Lion-OCBC Securities China Leaders ETF (in SGD) which replicates as closely as possible, before expenses, the performance of the Hang Seng Stock Connect China 80 Index, closed at $1.27 on Jan 17, its lowest level since inception in 2021. While its short-term indicators have been lower in previous declines, the volume on Jan 17 was the highest since inception. This could be viewed as a selling climax. Nonetheless, initial rebounds are likely to be tentative.
Similarly, the rebound following the HSI’s decline may be similarly tentative. The index had broken below the area around 17,000 in November 2023. Any rebound is likely to meet with initial resistance at 16,868.
Experienced punters and traders are likely to trade the HSI in the Hong Kong market. The easiest way in the Singapore market is through one of the Chinese ETFs such as the China Leaders ETF.
See also: Trumpian future of higher deficits, tariffs, point to inflation and higher interest rates
Note that consternation over mainland data continues. The National Bureau of Statistics (NBS) resumed publishing the youth (15–24 years old) unemployment rate in December 2023, redefining the data to exclude people still in school. The youth unemployment rate was at 14.9% in December 2023, sharply lower compared to 21.3% in June 2023 under the previous data series before it was suspended.
“Since the previous data was not directly comparable, it will be hard to decipher the trend in the youth unemployment situation,” UOB says. ”Given the ongoing downsizing of its property sector and slower than expected recovery in consumption demand, we maintain our view of a growth moderation in China to 4.5% this year from 5.2% in 2023,” the UOB report adds.
Market watchers have indicated that the Chinese government’s stimulus package has been disappointing so far, although more details could be provided at the NPC (National People’s Congress) meeting in March.
Markets tend to move ahead of fundamentals and many reckon the markets would have rallied by then, hopefully not from much lower levels.
