Hong Kong stocks rebound as sell-off that erased most of US$945 billion post-pandemic recovery attracts buyers

The Hang Seng Index’s 14-day relative strength index hit below 30 earlier this week, a threshold that signals stocks are oversold

The benchmark fell on Monday to the lowest level since late March 2020, erasing almost all of the recovery from the depth of pandemic

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A view of the Exchange Square, which houses the bourse operator in Central, Hong Kong. Photo: Sun Yeung

Published: 10:39am, 21 Dec 2021Updated: 5:19pm, 21 Dec 2021

Hong Kong stocks rebounded as traders deemed a sell-off this week that drove the market to near a 21-month low was excessive.

The Hang Seng Index rose 1 per cent to 22,971.33 at the close on Tuesday. It fell on Monday to the lowest level since late March 2020. Xinyi Glass and Meituan led gainers, surging by at least 4.5 per cent. China’s Shanghai Composite Index advanced 0.9 per cent.

Sentiment improved after China’s major financial newspapers reported that commercial banks will extend the cut in the loan prime rate as early as the first quarter in 2022 to bolster growth, citing analysts. The one-year LPR was cut to 3.8 per cent from 3.85 per cent on Monday, the first reduction since April 2020.

The Hang Seng Index’s 14-day relative strength indicator fell below 30 on Monday, a threshold that traders rely on as a signal stocks are oversold and poised to rebound.

“Hong Kong stocks have already dropped to a level that matches the three-year average in valuation,” said Guo Yuantao, an analyst at China Merchants Securities. “We expect the stocks to bottom out in 2022 and start to rise [amid further policy easing].”

The Hang Seng Index rose as much as 43 per cent from the pandemic low set in March 2020 when it peaked in February this year. The retreat from there has erased US$945 billion of market value in its wake.