Some pretty interesting movements happened yesterday again after the Greek semi/non/kinda fix out of the EU deliberations this morning. More later.
Initially, the market rallied pretty hard to join the euro on the way up, but more sober minds soon woke up and slammed the market back down to trade a hair above 21 800. We now have two filled Marubozu candles in quick succession on the 22 000 Hang Seng Index level. Still, after the initial sell-off, the market reaction was muted and stock distribution based on individual stock/sector characteristics followed in both trading days so far this week. One could make the thesis that this adds to the bearish case as the risk-drive from the euro-correlation universe fades. Still, this is countered by the anti-risk sentiment expression that seems to have dug in meaning that the preferred asset to buy is Hong Kong Dollars, and there seems to be strong support at 21 800 which represents the October highs.
Yes, the HKMA intervened in the currency markets again today to the tune of HK$3.1 billion, or US$400 million straight into the HK banking system. This is likely an effect that will in the long term need to be placed into some form of asset in Hong Kong, and given the absolutely dismal volumes of this rally (I have caught myself calling any number over HK$45 billion a high turnover) any incremental money coming into the market will juice the rally further. Yes, the last three months have seen volumes increase from the low forties to the fifty line, but it’s a very slow trend and the QE3-induced blowouts to the upside seem to have died down even. Unless we start seeing HK$60-70 billion on average daily, things are not necessarily looking too stable for the possibility of a sustained rally. I would prefer at least HK$80 billion daily turnover with HK$120 billion spikes, but that seems like a forlorn memory these days.
The bearish case gets strengthened by the low volumes, but the fact of the matter is this: money is coming into Hong Kong. Placing it in the Chinese stock market? It made a new three-year low yesterday, so that isn’t a wonderful idea, and Mainlanders are understandably flocking to Hong Kong. Money is not flowing into Europe organically for obvious reasons. The tied currency makes it a good alternative to the dollar, whose relative appreciation will eat up any gains in the Nikkei 225. Anyone tracking where that ended up by the way? A hair’s breadth above 9 400! Asian correlation traders beware as the Nikkei trend is up, while the HSI is still under the spell of that slightly downwards sloping trend. I would still say however, given recent moves, that the possibility for volume returns might be tied to that line breaking.
My recent darling, the HSI Volatility Index is rejecting the Friday close of 15.50%, although still making lower highs continuously. I do foresee a 2-3 day buffer zone before the lower-vol trade turns sour, and again, volume will be key for the Hong Kong market going forwards.