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Market Alert: Hang Seng Index in focus

Chinese stocks continue to tumble

Chinese equities have been underperforming since March due to concerns about the impact of the Delta variant on global growth and disruption to manufacturing.

However, this week’s dramatic sell-off has centred around the trend of tightening regulation from Beijing…

On Monday it was reported that Beijing had barred for-profit tutoring in core school subjects – sending Hong Kong-listed Scholar Education Group shares crashing more than 40% and sparking a strong sell-off across the education and property sectors.

The sell-off has broadened on Tuesday as there is growing concern that Beijing will tighten regulation in other sectors including fintech, social media platforms and delivery platforms.

We can see from the price chart (below) that the Hang Seng Index has broken below the ascending line connecting which connects the March 2020 and September 2020 swing lows. And the next key support level is some distance away at 23,100 (8% below current prices).

However, there are some signs that the Hang Seng Index is moving into oversold territory…

The Relative Strength Index (RSI) is at its lowest level since the September 2020 lows – and we can see that each time the RSI has hit this level during the last eighteen months, the index has gone on to rally.

It’s also worth noting that the sell-off has been very China-focused and we are yet to see contagion in other Asian indices, with Japan’s Nikkei 225 and Australia’s ASX in positive territory for the week.

Hang Seng Index Daily Candle Chart