China and Hong Kong stocks may be primed for a further increase as the world’s second-largest economy continues to recover with increasing momentum.
The Chinese economy experienced growth of 4.5% year-on-year in the first quarter of 2021, which exceeded the expected growth rate of 4% and marked an improvement from the previous quarter’s growth rate of 2.9%. In March, industrial production increased by 3.9%, falling slightly short of the anticipated growth rate of 4%, but still a significant improvement from February’s rate of 2.4%. Retail sales saw a notable increase in March, growing by 10.6% compared to an expected growth rate of 7.4% and February’s growth rate of 3.5%. Additionally, fixed asset investment grew by 5.1% year-on-year during the January-March period, which was slightly lower than the expected growth rate of 5.7%.
China Economic Surprise Index
Source data: Bloomberg; Chart prepared in Excel
Recent weeks have seen a series of optimistic data releases from China. The Economic Surprise Index for China this month reached the highest level since at least 2014, indicating the positive effects of the country’s economic reopening. There are also indications that a potential upturn in the property cycle may be on the horizon, as evidenced by a surge in new home prices in March. Additionally, there are hopes that regulatory crackdowns on corporations could be coming to an end, which suggests that this growth spurt has the potential to endure beyond just a temporary boost.
Shanghai Composite Index Daily Chart
It is widely anticipated that China will experience a year-on-year growth rate of approximately 5.3% in 2023, representing a significant increase from the estimated 4.3% in January.
This improved growth forecast is expected to have a positive impact on the equity markets of China and Hong Kong, as despite recent recovery since late 2022, Chinese equities are currently trading below their historical average over the past two decades.
Hang Seng Index Daily Chart
Shanghai Com: Rises above a key barrier
The Shanghai Composite Index has surpassed a significant obstacle by surpassing its early-March peak of 3343, which closely aligns with the 89-week moving average. Although the rebound in 2022 stalled at the Fibonacci moving average, the index appears poised to revisit its mid-2022 high of 3425. If it surpasses this level, a major double bottom would be triggered based on the 2022 lows, potentially paving the way for a 15% increase above the 2021 high of 3730.
Shanghai Composite Index Weekly Chart
The Hang Seng index is exhibiting signs of increasing strength and influence
The Hang Seng Index has maintained its position above the crucial support level of 18885, which indicates that the uptrend from the end of 2022, characterized by higher-top-higher-bottom sequence, has not been disrupted. The charts with colour-coding indicate that the bullish phase in the index has recommenced. Please refer to the chart for further details.
The Hang Seng Index is currently undergoing a critical examination of the horizontal trendline from early March at approximately 21000, which also aligns with the upper limit of the Ichimoku channel on the daily chart. If there is a definitive breakthrough through this resistance, it may lead to an opportunity to reach the January high of 22700.
Hang Seng Index Daily Chart
The chart that follows utilizes color-coded candles to represent different market conditions. The Bullish phase is indicated by blue candles, whereas a Bearish phase is indicated by red candles. Grey candles indicate Consolidation phases, which can occur within either a Bullish or Bearish phase, but sometimes emerge at the end of a trend. It is important to note that candle colors are not predictive and solely convey the current trend. Additionally, these colors are subject to change in the subsequent bar. False patterns can arise when dealing with the 200-period moving average, support/resistance levels, or in sideways/choppy markets. The author does not guarantee the accuracy of the information provided in this chart and past performance is not indicative of future performance. Users should exercise caution and utilize this information at their own risk.