Hang Seng looking bearish in the short term

Hong Kong shares have been on a 3-day slide, losing 1.69% and retracing below the key 25,000 point level.

Hang Seng
Source: Bloomberg

With the lack of leads in recent days, the Hang Seng Index saw some choppy sessions.

Shares were eventually dragged down by a range of factors, from increased concerns over the Ukraine-Russia crisis to profit-taking from the recent rally.

On a short-term basis, the Hang Seng looks to be starting on a downtrend after breaking through its support level of 24,740 and its 100-Day Moving Average (DMA).

With the negative leads from Wall Street overnight and a lack of strong market catalysts this week, the index is likely to find little reason to move ahead. We’ll be watching out for the Hang Seng Index to test its 200 DMA and the next support level at 24,420 points.

Click to enlarge

As data comes to bear

Shares will get a clearer direction on Monday when we see the release of some Chinese macro data. The finalized figures for HSBC China August Manufacturing PMI are forecast to come in flat at 50.3 by the market. Any positive upside is likely to be a boost for investor confidence and a catalyst for a rebound. On the flipside, any disappointing numbers should see Hong Kong shares drifting lower.

Longer-term fundamentals still look positive for Hong Kong shares, so more conservative investors can look to buy on dips off the support.

The Hang Seng is trading at relatively attractive valuations with a P/E ratio of 11. This compares against the S&P 500’s P/E of 18, the ASX’s P/E of 19, and the Nikkei’s P/E of 20. Investors have also been optimistic of further upside due to more stimulus measures from Chinese authorities and a boost from the upcoming Hong Kong-Shanghai exchange connect.

Ahead of the Hong Kong open

As we head into the month’s last day of trading, we could see a bit of window dressing action lifting prices. On that basis, we’re calling for the Hang Seng (Hong Kong HS50) to open 0.2% higher at 24,619.8 points.

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