The widening breadth of Hong Kong stocks’ rally in recent weeks suggests the bull run in Asia’s third-largest market has yet to run its course, according to a technical analyst.
The proportion of Hang Seng Index members trading above their 200-day moving average has been rising steadily since March, indicating the benchmark’s gain is buttressed by broad-based buying, said Kelvin Wong, an analyst at Oanda, who in February predicted Hong Kong stocks would rise.
The ratio for the 82-member gauge rose to 61 per cent in May, compared with 48 per cent in April and 38 per cent in March, he said. That is “an indication of a firmer major uptrend phase”.
A greater number of benchmark constituents rising generally indicates a rally in more than just a handful of stocks. The 200-day moving average measures a stock’s price performance over the period and is considered a key long-term price strength indicator by traders and market analysts.
The call adds to the argument that the recent pullback in Hong Kong stocks may be temporary mainly because they are technically in the overbought zone and the overall trend remains intact.
The Hang Seng Index has dropped about 6 per cent from a recent high on May 20, after charging into a bull market following a 20 per cent gain from a low in February.
Despite the decline, more veteran investors are joining the chorus in turning positive on Hong Kong stocks, which ranked as the world’s worst performers early this year.
The rally in Hong Kong stocks has been underpinned by China’s improving economic data and inflow of mainland funds, according to Wong.
A private purchasing managers’ index of China’s services industry for May, compiled by Caixin, showed the sector expanded at its fastest pace since July 2023.
Meanwhile, onshore investors have poured about HK$500 billion (US$64 billion) into the city’s stock market via the stock connect programmes this year, taking advantage of the beaten-down valuations and a strong Hong Kong dollar.
“The latest set of positive macro data suggests the piecemeal stimulus measures from China’s top policymakers are working to negate the deflationary risk spiral that has been triggered by the significant slowdown inherent in the domestic property market,” Wong said.
The Hang Seng Index rose 0.6 per cent to 18,533.78 on Thursday morning.
The benchmark may find intermediate support at around 17,930, where its 50-day moving average is currently hovering, said Wong.
Breaching that mark will allow the Hang Seng gauge to test its key medium-term support at 17,110, while a failure to hold onto that level will jeopardise the current uptrend and take the benchmark to just over 16,000, he said.