Hang Seng ‘September effect’, worst drop in 28 months

The popular stock market belief that September is the worst month for investing looks to ring true this time round, especially in the case of the Hang Seng Index.

Hong Kong buildings
Source: Bloomberg

On the last day of trading in September, Hong Kong shares are setting up for a monthly drop that will beat the 7.1% dip last June.  

This would make it the worst monthly drop in over two years, since the 11.6% dip to 18,629 points recorded back in May 2012, and global markets were shaken by jitters over the Eurozone debt crisis.

The rather subdued China macrodata released today gave little reason to celebrate as well. The final HSBC China manufacturing PMI for September showed a reading of 50.2, lower than the initial reading of 50.5 and unchanged from August.

Hong Kong retail sales figures released yesterday were better than expected. August sales rose by a 3.4% from the previous year, instead of the consensus forecast of a 2% dip. That failed to lift market sentiment and we saw the Hang Seng Index fall 1.9% on Monday.

Investors were likely more spooked by how future retail sales might be hit by the escalating tensions from the Occupy Central pro-democracy protests.

With China’s National Day Holidays starting on October 1, there are concerns that protests will keep tourists away from Hong Kong. Banks, retailers and tourism-related stocks have suffered the brunt of the market sell-off so far.

September was a particularly bearish month, with only 5 positive sessions. We’re likely to see the bearish momentum over Hong Kong shares continue.

The freefall has seen the Hang Seng Index today break through a major support level of 23,000 points. While it searches for a new support level, investors should keep an eye on whether the Hang Seng will continue to test its uptrend line over the past two years. A possible floor for it to test here will be around the 22,400 level – a previous resistance-turned-support.

Hong Kong HS50 chart
Click to enlarge

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