China and Hong Kong stocks dip on signs of technically being overbought
- The 14-day relative strength indices for the Shanghai Composite and the Hang Seng reach levels that indicate stocks are overbought
- Sell-offs are mild amid China’s trade data that exceeds estimates and the Sino-US trade deal
Stocks in the mainland and Hong Kong fell on concern the recent gains were excessive after a technical indicator signalled that equities were being overbought.
The Shanghai Composite Index fell 0.3 per cent lower to 3,160.82 on Tuesday, and the Hang Seng Index lost 0.2 per cent to 28,885.14. The 14-day relative strength indices for the two benchmarks, which measure how fast stocks rise or fall in a given time frame, were both at 70. A reading near or above the mark signals to some technical analysts that stocks are overbought and may start to fall.
The Shanghai Composite had risen 8.5 per cent since December through Monday, while the Hang Seng had recouped all the loss triggered by the drawn-out anti-government protests, rebounding 15 per cent from an August low.
The sell-offs were tempered by the imminent signing of a tentative trade deal between Beijing and Washington and China’s better-than-estimated trade data in December. The onshore yuan strengthened against the US dollar for a fourth day after the US removed China from the list of currency manipulators.
“The market is facing correction pressure after the recent run-up as investors have digested the expectations,” said Hong Liang, an analyst at China Galaxy Securities. “The room for correction won’t be too big and there’s a big chance that the Shanghai Composite will stabilise above 3,030.”
The Shanghai Composite currently trades on a so-called head-and-shoulders bottom, a technical pattern that typically points to the reversal of a downward trend. Given the fact that the index has already surpassed a neckline resistance of around 3,044, some technical analysts expects it to rise to at least 3,363, which implies an 8 per cent gain from the latest close.
Liquor distillers and brokerages were the worst performers in the mainland. Anhui Gujing Distillery fell 2.6 per cent to 145.90 yuan and Kweichow Moutai lost 1.5 per cent to 1,107.40 yuan. CSC Financial shed 2.5 per cent to 31.08 yuan.
SAIC Motor, China’s biggest carmaker by sales, dropped 1.3 per cent to 24.97 yuan after it said in a preliminary earnings statement that profit for 2019 had decreased 29 per cent from a year earlier.
In Hong Kong, AAC Technologies Holdings and Sunny Optical Technology Group were the worst performers, falling at least 2.3 per cent.
Macau casino operators defied the overall decline in the city. Sands China gained 3.1 per cent to HK$44.30, its highest in 18 months. China International Capital Corp raised its recommendation on the stock to outperform in a note on Monday, citing gains in market share and expansion of hotel capacity.
Galaxy Entertainment Group rose 2.3 per cent to HK$62.45 and MGM China Holdings added 1.6 per cent to HK$13.88.
