It’s been a very interesting day for the Hang Seng, with the Index surging 6.5% in the minutes after the open as trading volumes surged 400% beyond its 30-day average. It broke through 27,000 for the first time since January 2008 and got within shouting distance of 28,000, before it settled around 27,000 for the latter half of the Asia session.
The surge in the Index is being blamed on investors from mainland China snapping up perceived bargains in HK. The Hang Seng-Shanghai Stock Connect is finely being use after it was opened up to domestic mutual funds last month. This conduit between the mainland and HK has allowed investors in China to take advantage of higher premiums in HK, compared to the mainland. Admittedly, a 20% YTD surge in the Shanghai Composite and a 45% surge in the more tech heavy Shenzhen Composite far out strips a 15% jump in the Hang Seng.
There is still room for further upside in the Hang Seng, especially if capital continues to flow out of the mainland. The uncertainty surrounding the health China’s economy and the underperformance of the property market is driving investors to seek out alternatives. While we cannot rule out a pull-back in the bear-term, the Hang Seng still looks ok on a long-term technical basis; it remains in an upward trend.
Hang Seng (white) and Shanghai Composite
Source: FOREX.com, Bloomberg (note: this is a Bloomberg chart and may not represent the prices offered by FOREX.com)