Stock Index Trading: What will happen to the Hang Seng Index at the bottom?

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Last Friday (May 27), the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission issued announcements one after another, saying that they agreed to allow the two exchanges to include eligible ETFs in the interconnection. After the two exchanges have included eligible exchange-traded fund ETFs into the interconnection, mainland and Hong Kong investors can buy and sell stocks and ETF fund shares listed on the other exchange within the prescribed scope through local securities companies or brokers

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This measure will undoubtedly promote the common development of the capital markets of the two places, promote the in-depth integration of the capital markets of the Mainland and Hong Kong, and bring new funds to the two markets. It also means that the two-way opening of the capital markets will be further strengthened. Both A shares and Hong Kong stocks will usher in new incremental funds, especially the Hong Kong stock market, which has experienced a sharp decline in liquidity due to the impct of US stocks this year. The market is expected to usher in a continuous increase in allocations by global investors

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Coincidentally, as early as May 20, the Hang Seng Index Company announced the results of the index adjustment for the first quarter. The adjustment scope covers major flagship indices of Hong Kong stocks such as Hang Seng, China Enterprises Index and Hang Seng Technology Index. In addition, the Hang Seng Composite Index, which directly determines the investment scope of Hong Kong Stock Connect, has also been partially adjusted. On the whole, this adjustment involves a wide range and has a greater impact.

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Specifically, the Hang Seng Index has included 4 stocks, namely SMIC, OOCL International, Zhongsheng Group and China Hongqiao in this round of adjustment. AAC Technology, the weight before exclusion is 0.11%, and the index adjustment will take effect on June 13. The adjusted number of constituent stocks further increased from 66 to 69, further showing a trend of expansion. According to the consultation results released by the Hang Seng Index Company in March, the constituent stocks of the Hang Seng Index will increase to 80 by mid-2022, and will eventually be fixed at 100

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In the context of the domestic epidemic prevention and control is also trending, the Hong Kong stock market is expected to usher in the continuous increase in allocations by global investors, and the continuous adjustment of policies also shows that the management intends to stabilize the Hang Seng Index frequently. Since the 11th of this month The Hang Seng Index has rebounded by about 10% so far.

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Externally, the current rise of the HSI also benefited from the digestion of external risks. The latest US April core PCE price index (one of the Fed's most important inflation indicators) finally recorded 4.9%, in line with expectations, slowing down for two consecutive months and hitting a new low this year, marking the first time that inflation has fallen this year. Therefore, to a certain extent, the pressure on the Fed to raise interest rates aggressively has been eased, and the prospect of high interest rates has cooled.

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The fall in inflation + the risk of recession in US stocks has begun to make market investors expect the Fed's monetary policy to "turn from tight to loose" in the second half of the year, boosting market risk sentiment. However, there are still risks that have not been lifted, such as the uncertainty of the Russian-Ukrainian war, and the Fed's official opening of the balance sheet on June 1. If the shrinking of the balance sheet triggers a "dollar shortage", once the liquidity is tightened, US stocks will go Weakness will inevitably put the HSI under pressure again. Therefore, my current judgment on the Hang Seng Index is that it has entered the short-term bottom area, but the mid-term bottom needs to be further confirmed. A series of market reactions after the Fed’s official balance sheet reduction will be the macro factors that need to be paid attention to in the future.

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Looking ahead, the Hang Seng Index has broken through the downtrend line, the short-term bottom has been found, and the medium-term bottom has yet to be confirmed. At present, the short-term is mainly suppressed by the resistance of 21,200 points. Breaking through this level will see the mid-term resistance near 22,500 points, while the lower 19,900-19,200 points are the main support levels. Above the support area, maintain the idea of ​​​​buying on dips (upwards).