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​​​​Hang Seng & other China indices rebound, but sustained recovery in doubt​​​​

​​Chinese markets such as the Hang Seng have rallied off their lows thanks to hopes of state intervention, but can the rebound be sustained?​

Hang Seng Source: Bloomberg

​​​Chinese stocks have seen a rebound in recent trading sessions as the government has stepped in with support measures aimed at bolstering the struggling market. However, overseas investors remain sceptical that the intervention will lead to a lasting turnaround amid broader economic uncertainty.

​The benchmark Shanghai Composite Index rose for three consecutive days through last Thursday, posting its strongest weekly gain in 15 months. The rally of around 5% came after Chinese authorities unveiled efforts to prop up stock prices, including state-backed institutions purchasing exchange-traded funds (ETFs) and further tightening restrictions on short-selling. Meanwhile, the Hang Seng has managed to rally over 9% from its 2024 lows, though the downtrend is still intact.

​The moves signal the seriousness of policymakers about shoring up the capital markets after a protracted slump in Chinese equities. Stocks have been pummelled since last year as concerns mounted over slowing growth and an ailing property sector. The intervention aims to restore investor confidence and boost household wealth tied up in the stock market.

​However, doubts persist over whether the state-directed rally will have legs. Some analysts have drawn parallels to failed government efforts to support the market in 2015, which saw an initial rebound fizzle out and stocks resume their decline.

​Overseas investors have continued pulling money out of Chinese stocks in recent months, with a record high net outflow in August 2022. The exodus reflects growing wariness about China's economic prospects among foreign institutions.

​At the heart of the concerns are China's real estate downturn, which has dampened growth and hit household balance sheets. Strained local government finances and questions over China's declining long-term growth potential as its population ages have added to the unease.

​For Chinese equities to mount a sustainable turnaround, analysts say concrete policy steps are needed to address the property sector crisis and shore up fragile public budgets. Without tackling these core vulnerabilities, the latest market rebound risks being temporary.

​While the government intervention has helped stabilize sentiment, convincing overseas investors to return may require evidence of real economic traction. For now, China's economic outlook remains clouded, leaving the prospects of a lasting recovery in its markets uncertain despite the state's efforts.

​Hang Seng technical analysis

​The Hang Seng is about to test its 2023-to-2024 downtrend channel resistance line at 16,540, a break out of which may help it to form at least a short-term bottom.

​​For a medium-term bottom to be formed, a rise and daily chart close above the 200-day simple moving average (SMA) at 17,773, the long-term downtrend line and also the January peak at 17,173 would need to be seen. In such a scenario, the Hang Seng may reach its October-to-November highs at 18,339 to 18,403 in the course of the second quarter (Q2).

Hong Kong HS50 Daily Source:
Hong Kong HS50 Daily Source:

​Minor support below the December low at 15,952 sits at its mid-February 15,425 low, a fall through which would throw a spanner in the works of the recent gradual recovery process.

Hong Kong HS50 Weekly Source:
Hong Kong HS50 Weekly Source:

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