Things have been more hectic in my life than I expected (getting assignments handed over during the weekend being one of them) so blogging has been on the back-burner for a while. Looking to make up for it, but I probably won’t get anywhere near as much posted as I expected this weekend. On to the Shanghai – Hong Kong Stock Connect’s last day of trading, and important information:
- Hang Seng Index:
- Closed spot-trading at 23 437, up 0.37% with a daily high of 23 508.
- Futures implied spot closed at 23 941, with a high at 23 942 (!)
- Turnover was higher than Thursday or Wednesday, at HK$71.1 billion.
- The implied futures-spot spread is positive again by a little bit more than a basis point.
- Hang Seng China Enterprises Index:
- Closed spot trading at 10 447, up 0.65%, with a daily high of 10 507.
- Futures-implied spot closed at 10 802, with a high of 10 808.
- Turnover was higher than at any other time this week, with HK$15.9 billion.
- Shanghai Stock Exchange:
- Closed at 2467, up 1.39% with a daily high at around 2468.
- Turnover increased to RMB197.8 billion!
- A-Shares Top 50 closed at 7 633, up 1.96%.
- These rallies are just off the PBOC liquidity injection, thus not considering the interest rate cut!
- Shanghai – Hong Kong Stock Connect:
- Northbound turnover: RMB2.34 billion.
- Southbound turnover: RMB190 million.
- Northbound trading volumes accelerated a lot over the afternoon, nearly doubling when compared to the morning, mostly off the liquidity injection news.
- Southbound trading was choppy and blocky, going both directions for a majority of the day. Trading into Hong Kong seems to gradually be less of a one-way bet and this is causing a lot more noticeable quota balance two-way variations.
- HKMA monetary base data:
- Marginal increase in overall monetary base, by around HK$300 million.
- Certificates of Indebtedness is like most often the majority of this change.
- OEFBNs held by NBFIs dropped by more than HK$400 million! These financial institutions were almost HK$450 million “longer” on non-cash assets at the close of the trading day! Some people are getting a windfall tomorrow…
Time then for a technical overview of where the week left us.
Hang Seng Index:
HSI futures-implied spot, daily candles.
Just look at that!
- We bounced off the 50% short-term Fibonacci, climbed the short-term 38.2% level (after dealing with some intra-day resistance) and even managed a futures close above the long-term (2007 – 2008 move) 61.8% level! Whoa!
- MAs were massacred and left in the dust. 21 EMA/SMA and 63 dittos were discarded alongside the short-term 38.2% Fib! Both the 126 and 189 SMA’s were also crossed, but the spot price never traded below the 252 SMA (futures dipped a little below this level at a time on Thursday evening).
- We’ve broken the top yellow downwards sloping trend line. This really flips the market with all the support below price!
- ADX/DMI positive cross after a week of constant declines following the negative cross! Very strong work!
- MACD[21, 63, 21] is looking positive again and is very close to a signal-line cross of the zero level.
- The levels to cross look like 24 375 (Fib and support/resistance), 24 725 (support/resistance) and then 25 416 (market peak).
Calling things more clearly with this many moving variables, including further easing/liquidity injections by the PBOC, IPO-related cash flow, and how the Shanghai – Hong Kong Stock Connect will enforce this is very, very difficult. We are in a new trading paradigm here in the Hong Kong and Shanghai financial markets!
Hang Seng China Enterprises Index:
Hang Seng China Enterprises Index, daily candles.
There are very similar but further enforced signals just given the sheer size of the move in the futures market. Notably, we’re crossing more important Fibs (long-term 38.2%), bouncing off a trendline-Fib combo, and the packing of three significant MAs, 38.2% short-term Fib and a negative lower trendline around 10 570 – 10 600 would have given this range much more power as a resistance level.
The same broad analysis as for the HSI is noted, but again, a China exposure provides extra premium on the return here.
Shanghai A-Shares Top 50:
Shanghai A-Shares Top 50, daily candles
By comparison, this chart doesn’t cross as many resistances (since there aren’t any save for the 61.8% Fib). Still, this is the spot market, and the HSCEI futures-implied divergence would mean that the price would open tomorrow at close to 7 900 (+3%!) when accounting for variance. Looking into the outperformance of the SSE lately, it is probably likely that we will close north of even this level due to the raw China exposure, and less expectations of cash holding needs after the majority of the cash-draining IPO pipeline is over with.
With IPO pops making people more positive towards the primary issuance market, there is the great possibility of an overall market pop, but the problem lies in this possibly draining even more cash from the system. The question then is how much of sidelined cash is expected to be put to use. At least we have the PBOC providing liquidity through nearly all channels possible, so there is probably very little view of much of any risk.
Overall, it might be questioned if the Shanghai – Hong Kong Stock Connect was a failure given the very low volumes on the exchange relative the quota, but I would prefer to withhold judgment on this until we get a few more weeks of trading in if the IPOs are really shifting the cash and liquidity mechanics over the whole market.
Relatively consistent investments by the “smart money” shows that larger investors are piling into the market, irrespective of what the overall market level is. After the massive interest rate decision shows that the gloves at the are coming PBOC are coming off, I’m expecting at least a 2 000 point run as has been the case in a lot of other market-positive events (like Xi Jinping taking power, or other times where growth has been supported on a broader scale by the PBOC). This would put the A50 above the 2013 peak, and clear the way for a much broader rally into the 10 000 – 10 900 point-range. This would have immense positive implications for the Hong Kong markets, allowing for example the HSI to challenge 27 000 or higher, and the HSCEI to see a complete breakaway from the triangle it has been trading in ever since the rest of the world markets soundly recovered in 2009.
