China ban on HK-bound visas to weigh down mood

The pro-democracy protests are still going strong, putting the Hong Kong market under the spotlight as it reopens after two days of holidays.

Hong Kong Protests
Source: Bloomberg

All eyes will be watching out for how events will unfold and have an impact on the Hang Seng, which is now at its lowest level in three months.

High on the list of factors will be the decision by China tourism board to suspend the approval of new visas for mainland tour groups to Hong Kong.

Chinese tourists made up three quarters of the 54 million visitors to Hong Kong last year, and group tours account for between 8% - 10% of Chinese visits, according to a Bloomberg report.

That’s likely to weigh down further on sentiment over retail and tourism-related stocks, which have been bearing the brunt of the sell-off so far.

The cap on the inbound tourists adds to the woes of retailers, who have been forced to close some of their doors in key commercial areas.

Some stocks likely to come under pressure are luxury retailer Prada, and jewellery chains Chow Tai Fook and Chow Sang Sang. Shares of casino resorts Galaxy Entertainment and Sands China are also expected to continue their slide.

Sands China is currently on a downtrend and the bearish outlook is likely to see the downward bias remain. This stock could likely test the June 2013 low of $35.35 as a support level. The 61.8% Fibonacci retracement at $47.27 will be a future resistance level to watch out for.

Sands China
Click to enlarge

Ahead of the Hong Kong open

The recent freefall has seen the Hang Seng Index today break through a major support level of 23,000 points. With the market sentiment still looking bearish overall, we are calling for the Hang Seng Index, or Hong Kong HS50, to open 0.86% lower at 22,341.4 points.

We could see some bargain hunting coming into the market for sectors not hit by the protests, such as technology stocks, which could provide some support for the overall index. If enough momentum comes in we could see the Hang Seng continue to respect its uptrend line over the past two years.

However, if events take a turn for the worst it is likely to prompt more market jitters.  A break below the uptrend line around the 22,400 level will suggest a further downside to the next support level at the 22,000 point area – a previous resistance-turned-support.

Hong Kong HS50
Click to enlarge

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