Hang Seng waiting for catalysts above 25000

Hong Kong shares had a choppy session on Tuesday, but has finally broken through and closed above the key 25,000 point level for the first time in six years.

Hong Kong buildings
Source: Bloomberg

The Hang Seng had been pushing to do so for the past week and it seems the bulls finally won, with the positive leads from Wall Street and nothing really prompting any real cause for profit-taking.

The Hang Seng Index looks set to extend its winning streak to four straight days, so is it the time to buy into it?

The market expectation of further stimulus measures from China has been feeding most of the optimism.

Despite rather soft macro data from China, earlier in the week from foreign direct investment and property prices, investors appear to remain bullish on stock valuations and a slew of positive corporate earnings such as from Lenovo and Tencent.

The Hang Seng is trading at a forward P/E of 11.6 and China H-shares with  a P/E of 7.7, which is relatively cheap against counterparts such as S&P 500 at 16.5 and Nikkei  225 at 17.4.

Investors have also been getting excited about asset injections from Chinese state-owned enterprises, lifting the sentiment over stocks such as CNOOC and China Resources Land.

On technical analysis, the Hang Seng Index is following an upward trend line. We will be watching out to see if it respects the resistance-turned-support area of around 25,060, based on last week’s high. More aggressive traders could consider this area as an entry point, or wait for a more conservative pull back to the key psychological level of 25,000 points.

Looking at the opening session, we could be set for another choppy trading session with the trading day relatively light on macroeconomic data. We could get more direction tomorrow morning with the release of HSBC’s China Manufacturing PMI estimates for August.

Hong Kong HS50 Chart
Click to enlarge

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