Signs of weakness in Hang Seng have emerged
AS AT Mar 20, 2025, the Hang Seng Index (HSI) had recorded a strong year-to-date increase of about 23.42 per cent, closing at 24,219.95 compared to 19,623.32 on Jan 2, 2025. This performance reflects resilience in Hong Kong’s stock market amid global economic uncertainties.
Key factors influencing the performance of the index included China’s recent economic data and anticipated policy decisions from the Chinese government. US-China relations, particularly on tariff announcements, also invoked volatility in the index’s movement. Other than macro-economic factors, performance of major listed companies, especially in technology and consumer sectors, also influence the index performance. The increasing focus on AI and DeepSeek has also led to more investor interest in Chinese technology companies, boosting the performance of related companies.
Bullish scenario
From a technical perspective, the HSI appears bullish, continuing its uptrend after rebounding from the 61.8 per cent Fibonacci level at 23,892. The index seems poised to test the 76.4 per cent Fibonacci level at 25,125, with potential resistance at the 100 per cent Fibonacci extension of 27,120, suggesting strong upward momentum. This bullish scenario is supported by the index’s recent performance, which has demonstrated resilience despite external pressures, with the 200-day Simple Moving Average (SMA) level in Sep 2024 and Jan 2025 acting as support levels for the index.
Bearish scenario
Despite the HSI’s strong performance, signs of weakness have emerged. A bearish divergence has been observed, where the HSI has made higher highs, but the Relative Strength Index (RSI) has formed lower highs, indicating diminishing momentum. Additionally, the RSI has fallen below the overbought level of 70, which could signal a potential reversal, adding a layer of caution for investors. Key support levels to watch are the 50 per cent Fibonacci level at 22,895 and 38.2 per cent level at 21,898. A break below these levels could confirm a bearish outlook and lead to further declines, indicating overbought conditions and potential profit-taking.
Conclusion
The HSI’s strong year-to-date performance has been driven by China’s economic policies, global market sentiments, and corporate performances. While the index has the potential to rise to 25,125 and beyond, increased profit-taking sentiment could pose a risk of a decline towards 22,895 or 21,898. Given the prevailing macroeconomic factors and technical signals, investors should monitor closely these key levels to navigate potential volatility effectively.
The writer is manager, dealing & investor education, at PhillipCapital
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