The Hang Seng is a benchmark stock market index in China; and if you’ve been watching the news lately, you know that it has been struggling. For several trading sessions back to back, the Hang Seng has seen declines. As a matter of fact, it was Chinese market conditions that led to the currency devaluation and economic instability that took the world by storm; sparking a sell-off in just about every major index around the world. Now, it seems as though there’s silence after the storm and investors are asking “What’s Next?” Today, we’ll take a look at what the Hang Seng chart tells us, what we know about the Chinese economy and market, and try to pinpoint what’s likely to happen throughout the rest of the year.
What The Hang Seng Chart Tells Us
Chart Courtesy of anyoption
Looking at the chart above, there are two things that are blatantly obvious. First and foremost, the Hang Seng index has been on a downtrend for quite some time. Secondly, the stock may have found support. To see this, look back to April; when the index was rising. You can see that in the beginning of April, the Hang Seng saw great gains. These gains were followed by slow and steady downtrends; which continued for quite some time. Then the downtrends became more serious both in the beginning of July and in the Middle of August. This brought the index to where it is today.
Support is the point at which downtrends stop and gains commence. If you look to the end of the chart, it seems as though the index has finally reached support; with the Hang Seng seeing dramatic increases on Monday, August 31st. Now the question is whether or not that level of support will hold. To decide that, we’ll look into fundamental data.
Hang Seng Fundamentals
The Hang Seng is a Chinese index. Therefore it is highly reliant on the state of the Chinese economy. This is where things are possibly going to get grim for the index. The reality is that the Chinese economy is struggling at the moment. As a matter of fact, economic conditions are so poor right now that China’s currency has been devalued to stop further declines.
A devaluation of currency helps the economy by making imports even more expensive than they once were. After all, if the Chinese Yuan falls in value compared to other currencies, products that are priced in other currencies automatically become more expensive. In the end, it is the hope that this change in import pricing will cause the Chinese people to purchase more products nationally; rather than internationally. If this was the case, it would help the economy through consumer spending.
So, while China’s economy is struggling, they seem to have a plan. Although the devaluation of the Chinese Yuan put pressure on global markets, it really is a positive move for the Chinese economy; and therefore Chinese markets. So, while China’s economy is still struggling, the devalued yuan may prove to be a savior to the Chinese market.
What We Can Expect Moving Forward
Tying this all together, both technical and fundamental factors show us that the Hang Seng is likely headed in a positive direction. With support in the market and monetary policy helping to pick up consumer spending on national products, we should see increases. However, I’m not expecting to see anything momentous in either direction from here. While I’m no psychic, I do think that we’ll see more slow and steady movement out of the Hang Seng throughout the rest of the year.
What Do You Think?
Where do you think the Hang Seng is headed and why? Let us know in the comments below!