Hong Kong protest weighs on Hang Seng

Tensions have escalated from the pro-democracy protest movement, Occupy Central, threatening to pull down market sentiment further.

Hong Kong Stock Exchange
Source: Bloomberg

There have been reports of violent clashes against the police over the weekend, with tear gas and water cannons being used to disperse the crowds.

In fact, Occupy Central may no longer be an apt name for the movement as it has spread to various neighbourhoods such as Mongkok and Causeway Bay.

Markets reacting adversely

The Hong Kong dollar has already reacted negatively, hitting a six-month low against the greenback. The Hong Kong currency has lost over 0.14% since last Wednesday to touch HK$7.7627 versus the greenback. It’s now headed for its biggest three-day loss since November 2011.

Expectations are pretty widespread, the intensifying protests will be a catalyst for a further correction for Hong Kong stocks, which not so long ago was pushing new record highs above the 25,000 mark in the beginning of the month. Since then, a sell-off has seen the Hang Seng index drop over 6.4% to new two-month lows.

The recent stream of China macrodata has not been particularly strong to bolster investor confidence, and the worsening sentiment could lend a further hit.

Among the businesses that are most likely to be affected includes retailers and tourism-related firms. With China’s National Day Holidays starting on October 1, these companies will suffer the brunt of any drop on tourist numbers to Hong Kong. Stocks that could be under pressure include Belle International, Galaxy Entertainment and Sands China.

Ahead of the Hong Kong open

Consumer-related stocks have a 7% weighting on the wider index. Any further pressure will raise the bearish tone over the Hang Seng Index.

We are calling for the Hang Seng Index, or Hong Kong HS50, to open 0.96% lower, at 23447.1.

The index has broken through a recent support level of 23,640 points and is facing bearish momentum under the 20, 50, and 100 DMAs. It looks likely to continue on its downward trend as it seeks the next support level at 23,000, which it last tested in mid-July.

Hong Kong HS50 chart
Click to enlarge

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