The recent Chinese stimulus measures have set a potential low for the Hang Seng index.
HK 50 – Weekly Chart
The HK 50 has rallied from another test of the support at 16,842 and the market now has a chance to move higher to the 22,764 level.
Short covering may have driven some of the recent sharp rally in Hong Kong stocks after China’s central bank unveiled a broad package of measures, JPMorgan Chase analysts said.
The city’s short sales ratio as a percentage of total market trading dipped to 13.6% on Tuesday from 15% to 22% last week, Wendy Liu wrote. That brings the ratio to one standard deviation below the market average since 2016.
That is a sign that any outsized short positions have now been covered and buyers can be the dominant group in the weeks ahead. It is unlikely that shorts will return when the PBoC has drawn a line in the sand with economic weakness. Chinese authorities had looked for the market to find its own recovery but have lost patience and stepped in to support corporations and homeowners.
Hong Kong stocks surged for a fourth day on record trading volume, reclaiming the 20,000 level and registering the best week in 26 years after a buying frenzy. The Hang Seng Index jumped 3.6% to 20,632 as of Friday. That was the highest level since April 2023 and created a 13% gain on the week.
That was the best weekly performance since the 14.9% rise in October 1998 and added more than US$440 billion in market value to domestic stocks.
Total transaction volume in the market surged to HK$445 billion (US$57 billion) on Friday, the highest on record, according to Bloomberg. Technology stocks rallied 5.8% as the Shanghai Composite Index jumped to a four-month high.
“We have seen one of the busiest periods from our clients in recent years across Asian equities, and notably across mainland China and Hong Kong stocks,” said Paul Smith, Citi’s head of markets for Asia and Australia. “These latest measures have provided fresh impetus into the market, and we see it continuing given ongoing investor interest.”
The Hang Seng rally has driven away short sellers and they are unlikely to return after the PBoC telegraphed further rate cuts and stimulus.
