Market Commentary - For the week ending 23 February 2024

Market Commentary (Hong Kong)

For the week ending 23 February 2024

The Nikkei 225 index finally printed a new all time high after beating its previous top set in 1989; the index grew 28% in 2023. Nvidia closed 16.4% higher on earnings day after beating estimates and announcing a record revenue.

●    Under China’s whitelist mechanism to untangle its illiquid property sector, five state-owned banks were matched with more than 8200 development projects that require funding.
●    Automobile exports from China rose 47.4% y-on-y in January according to CAAM data. NEV rose 21.7%.
●    Price war broke out once again in China’s electric vehicle market. After BYD rolled out a Dolphin EV model priced at CNY 99800,  several car makers also cut their NEV prices to below CNY100000.
●    Houthis sent shippers formal notice that all vessels that are linked to Israel, US and UK are no longer allowed to sail waters around Yemen. This week a bulk carrier hit by the Houthis in the Red Sea took on water and was abandoned by its crew.
●    China froze trading accounts of quant fund Lingjun Investment after detecting unusual activity. According to Shenzhen Exchange, the fund sold CNY 2.57 billion worth of stocks within one minute when the market opened on Monday after the Spring Festival.

Hang Seng Index closed the week at 16726, up 386 points or 2.36%. Some observations: 1. This is the first time since June last year that this index managed three weeks of consecutive gains (see rectangle). 2. HSI has beaten its 50-day SMA which was a recurring resistance during this entire down leg. 3. Based on price action this week, the index crossed the red 100-Day SMA line but closed below. This could be a nod to the 100-Day as a potential resistance level. 4. Based on previous swing highs and lows, 17000 could also be a level to look out for.

HSI weekly chart from 02 January 2023 to 23 February 2024 (Source: DLC.socgen.com)

Hang Seng Tech closed the week at 3400, up 57 points or 1.71% for the week. This is also the first time since June last year that HSTech achieved three weeks of consecutive gains. For now the index is still under its 50-Day SMA but its overall movement could comply with larger channels that can be observed. That potential compliance has to be confirmed by price action in the following weeks. If it fits however, then there is a chance that HSTech could continue to climb till 4000 or above. Longer term moving averages 50, 100 and 150-Day SMAs are still pointing down and diverging. This is a setup associated with further losses.

HSTech weekly chart from 02 January 2023 to 23 February 2024 (Source: DLC.socgen.com)

Both Dow and Nasdaq printed new highs but closed with bearish candles. Both indices continue to trade above their basket of moving averages. This is a setup associated with further gains.

The next FOMC meeting is scheduled on 20 March 2024.

Fed funds futures on rate hike probability by next Fed meeting as at this week’s close:

●    96.0% probability of no change |4.0% probability of 25 basis points cut

Fed funds futures on rate hike probability by next Fed meeting at last week’s close:

●    90.0% probability of no change |10.0% probability of 25 basis points cut

Probabilities on the CME Fedwatch Tool indicate no more rate hikes for this year but also indicate possibility for rates to stay at current level until March next year. Rates could hold at current level till January 2025. Probabilities predict a cumulative 175 basis point cut for the whole of 2024 and up to 200 basis points between now till March 2025.

Shanghai and Shenzhen came back from Spring Festival with strong performances. Shanghai closed at 3005, up 139 points or 4.85%. Shenzhen closed at 9069, up 249 points or 2.82%. Importantly Shanghai recovered above a two-year low and managed to close above its 50-Day and 100-Day SMAS, the 50-Day being a recurring resistance. Big banks and ‘Big Oil’ Sinopec, PetroChina and CNOOC were strong contributors to these gains. Shenzhen closed below its 2023 low and is a clear underperformer between the two indices.

Other news:

●    AIA, Cosco Ship Holding and Kuaishou bought back shares.
●    CNOOC and PetroChina printed new 52-week highs.
●    BYD announced that it will introduce a share buyback plan following Chairman Wang’s proposal in December to buy back up to CNY 200 million worth of A-shares. The company also announced that it will launch several luxury models this year.
●    Artificial intelligence startup Moonshot AI received $1 billion from a recent funding round. Investors include Meituan and Alibaba.

Technical observations

China Construction Bank 939.hk broke out of 19-week consolidation, rode rising indicators with volume expansion.

Note chart features:

1. A clearly visible horizontal channel can be observed in the weekly chart. It spans nineteen weeks that started in October last year. This is a consolidation. While stocks on Hong Kong, China’s stock exchanges were falling, this consolidation hinted at underlying strength. Price outperformed indices over this duration.

2. During this consolidation, moving averages moved from downtrend to sideways and are now pointing upwards after several golden crosses. CCB broke out of this consolidation with high volume. It is also trading above its complex of moving average indicators. This is a setup associated with further gains. Some retracement or sideway consolidation could be expected.

China Construction Bank 939.hk weekly chart from 03 July 2023 to 23 February 2024. (Source: DLC.socgen.com)