Shipping stocks lift tide for Hang Seng

Shipping stocks in Hong Kong rallied yesterday on the back of a surge in the Baltic Dry Index (BDI). This is the benchmark for freight costs of dry commodities ranging from iron ore and grains.

Hong Kong City
Source: Bloomberg

BDI is currently pushing one-month highs after closing 4.2% higher at 1,136 points last night in London.

This followed the 12% rise on Tuesday night, which was the sharpest spike in over five years.

This helped lift shipping stocks such as Cosco Pacific, China Cosco, Qinhuangdao Port, and China Shipping Container Lines – which were among the top gainers yesterday.

With the BDI on its fourth straight day of gains, we could continue to see shares in the sector steam ahead today.

Looking ahead, there will be some market events and possible catalysts to watch out for.

Watching out for sentiment risks

On Friday, China will release its housing price index for September at 930am (SGT). We’ve seen the price index growth slowing down since the start of the year with the latest reading at 0.5%. It will not be a surprise for the trend to continue, though this time we might see the index finally dip into negative territory to suggest a contraction.

Another reading to watch out for is the Conference Board China Leading Economic Index, which will be out tomorrow at 10am. The last reading for August was at 0.7, a drop from the previous month’s 1.3.

We are likely to see some subdued figures, at least going by the guidance of the soft reading from China’s Q3 GDP on Tuesday. Growth for the third quarter came in at 7.3%, China’s slowest in over five years.

Any significantly disappointing readings could prompt some profit-taking after a good bounce this week in the markets. However, it is hard to rule out that investors may be prompted to bet on further economic stimulus action. Last week, reports indicated that China’s central bank is planning an injection of $32.7 billion into national and regional lenders to boost liquidity.

In the backdrop, pro-democracy protests in Hong Kong are still unresolved and remain a risk for investor confidence. Tuesday’s talks between the Hong Kong government officials and pro-democracy protestors have yielded little in terms of results. This could yet steal the headlines again and weigh on market sentiment.

Ahead of the Hong Kong open

With a lack of macro data events to lead investors today, investors are likely to stay on the sidelines, which will leave the markets largely flat. On that basis, we are calling for the Hang Seng Index, or Hong Kong HS50, to open lower at -0.5% at 23,278 points.

On a short-term basis, the Hang Seng has broken above its 20 DMA and is attempting a clear break above its 50% retracement level at 23,274 points. If nothing derails investor confidence, we are likely to see a test of its next resistance at the 38.2% retracement level at around 23770 points.

More conservative and long-term traders can wait for the 50 DMA to cut back above its 100 DMA to reinforce a longer-term trend.

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