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.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.