Hang Seng Index could drop up to 18 per cent from Lunar New Year high as market fatigue sets in, China fund warns

Name: As mainland China reopens, what is the market outlook for the mainland and Hong Kong?
Uploaded: 2023-01-31T08:01:04.000Z
Duration: 11 min 31 s
Description: As mainland China reopens, what is the market outlook for the mainland and Hong Kong?

The Hang Seng Index could retreat by 10 to 18 per cent from its January 27 high as current upswing runs out of steam, MegaTrust cautions

The benchmark, and several index leaders like Alibaba and Tencent, are ‘overbought’ based on their technical readings

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A lion dance highlights the first trading day in the Year of the Rabbit in Hong Kong on January 26. Photo: Enoch Yiu

Jiaxing Li

Published: 4:01pm, 31 Jan 2023Updated: 5:10pm, 31 Jan 2023

The rally in Hong Kong stocks is overstretched compared with the history of five such market recoveries since the Covid-19 outbreak, creating a trap for latecomers piling into China reopening bets, according to a money manager.

The Hang Seng Index could drop by 10 to 18 per cent over the next two months from the level on January 27, which marked the peak in the index’s advance from its October 31 low. That suggests investors could endure more pain after this week’s 3.7 per cent mini-slump, with technical indicators flashing “sell” signals.

The index has surged 55 per cent over 58 days, following a 35 per cent loss over 86 days of drawdown from August to October, according to MegaTrust Investment, a boutique Chinese investment firm. The latest boom-bust move is “a bit too much” against the 20-odd per cent swings in previous cycles, it said.

“It’s good to be cautious, especially when the market has had such a strong run already,” said Qi Wang, Hong Kong-based CEO at MegaTrust. “Nothing goes up forever.”

11:31

As mainland China reopens, what is the market outlook for the mainland and Hong Kong?

Stocks in Hong Kong retreated for a second day, narrowing the Hang Seng’s advance this month to 10.4 per cent from as much as 14.4 per cent. It still remains the best performer among major global stock benchmarks this year, a rally that added US$1.55 trillion of capitalisation in the city, according to Bloomberg data.