Whew, we’re finally past all the major market-moving data today! Let’s celebrate with the daily scheduled bit of more Shanghai – Hong Kong Stock Connect roundups! You know the drill by now.
- Hang Seng Index:
- Fell 0.1% to a close at 23 350, with an intraday low at 23 253 and high at 23 461.
- Turnover fell again, to HK$61.1 billion from HK$65 billion yesterday.
- The futures-implied spot closed at 23 246, with a low of 23 207.
- The implied futures-spot spread is now negative, and the index is in contango by 2 basis points! Uh-oh…
- Hang Seng China Enterprises Index:
- Fell 1.1 basis point to a close of 10 379, with an intraday low at 10 331 and high at 10 443.
- Turnover was actually up, to HK$11.45 billion, from HK$10.89 billion yesterday.
- Futures-implied spot was 10 349, and a low of 10 310, with the implied futures-spot spread still positive but much smaller than yesterday at roughly 15 index points.
- Shanghai A-Shares Top 50:
- The SSE composite gained 1.67 points (7 bps) to 2 453 with a low around 2 444 and a high around 2 461.
- The A-Shares Top 50 was up to 7 486, with a low of 7 381 and a high of 7 507.
- Turnover was down on the day, to RMB150.8 billion.
- Shanghai – Hong Kong Stock Connect data:
- Northbound trading was down from yesterday (as per usual) with a final value of RMB2.28 billion traded.
- Southbound trading was smoother, but came in at RMB200 million, which was even smaller than yesterday’s RMB250 million!
- We again had some increases in the Southbound quota balance, indicating more selling than buying across the Southbound link, with the majority of these coming in around 11 am and 3 pm. The morning trade makes it look like unmatched/non-disguised block trading was involved given the sudden jump upwards of the balance.
- On both markets, more quota was traded at the last hour than the average hourly rate for the day, but the quota use was also relatively fast in the morning on the Southbound link, while it accelerated continuously on the Northbound link.
- Hong Kong Monetary Authority data:
- Few changes overall, but a fall in the monetary base of roughly HK$300 million, with the majority of this being contributed by Certificates of Indebtedness.
- A HK$15 million fall in the Closing Aggregate Balances!
- OEFBN’s were similarly drawn down by HK$17 million.
- The OEFBN’s held by Non-Bank Financial Institutions increased by HK$300 million, reaching a still-low level of HK$77.8 billion.
So, what to make of all of this?
Do you like bold predictions? I do: if I get them right I can point towards it, if I get it wrong then I’ll let the prediction fade into obscurity. Prediction:
The Hang Seng Index will rally tomorrow, and be lifted by higher volumes of trade through the Shanghai – Hong Kong Stock Connect.
The relevant price and turnover data:
- Hang Seng Index:
- Closed at 23 373, low at 23 341,
- Futures-implied spot low at 23 311, closed at 23 316.
- Low turnover, at HK$65 billion for the day, down from HK$75 billion yesterday.
- Hang Seng volatility (VHSI) is down 9.9% on the week!
- Hang Seng China Enterprises Index:
- Close: 10 381, low: 10 354,
- Futures-implied spot low at 10 354, closed at 10 374.
- Low turnover, at HK$10.89 billion on the day, down from HK$13.54 billion yesterday.
- Shanghai A-Shares Top 50:
- Close: 7 455, low: 7 441.
- Turnover on the Shanghai Stock Exchange overall rose to RMB167 billion.
- Shanghai – Hong Kong Stock Connect data:
- North- vs.Southbound quota use: RMB2.61 billion vs. RMB250 million.
- The vast majority of the Southbound trade was done in a single block of about RMB230 million at around 14:45 local time.
- There was even some increases in the Southbound quota balance, implying that Hong Kong stocks were being net sold off in those minutes by mainland Chinese investors.
- Northbound purchases accelerated as the day progressed, with a few smooth but noticeable jumps and a higher base-pace of quota balance depletion.
As for the price levels, you are free to see the technicals on my Watched Charts for daily updates and look at the longer-term analysis for why I think we will have lift-off tomorrow. As for the HKMA monetary base data:
- The total monetary base fell below HK$1.34 trillion, driven only by decreases in certificates of indebtedness (cash). This is a negative, but it is so minor, accounting for roughly 20 points on the HSI, with several hundred points of standard deviation for any such monetary base change characteristics. Given the outflow from Hong Kong to China through the Stock Connect I am surprised that this number is not higher!
- The OEFBN ownership by NBFIs decreased again, to HK$77.5 billion. This is a possible bullish signal, as mentioned before since the NBFIs are committing cash to riskier assets, which likely end up in the market some time. This contrasts to yesterday’s increase, so maybe the traders are seeing an opportunity to buy at these levels!
Hit the jump for more detailed technical analysis discussions and a little bit of an extra tidbit on my spread reflections as applied to Hong Kong.
The futures market for Hong Hong is closed at the moment, and that gives me some time to look into how the market has viewed trading beyond the first day of the Shanghai – Hong Kong Stock Connect being open in a wider perspective. This isn’t rosy reading, so bunker up with something sweet to snack on to take the edge off the data.
Before I dig into the indices themselves, I’ll provide a rundown of the day’s most important data.
- Volume was down on the Hang Seng Index and and Hang Seng China Enterprises Index alike, but the effect was stronger on the HSI which posted a HK$74 billion turnover, versus yesterday’s HK$83 billion. For the HSCEI the effect was miniscule and stayed a rounding error from HK$13.6 billion both days.
- The Shanghai – Hong Kong Stock Connect volume was relatively paltry. Northbound trading added up to RMB4.85 billion, while Southbound trading only managed a meager RMB800 million. Most of the open-market trade was also conducted during the afternoon, after the HSI started trading a little bit more two-directionally.
- It does seem like mainland investors are a supporting force, but so far it looks like the massive over-weight is with Hong Kong investors looking to trade out of Hong Kong-listed Chinese stocks (arguably heavily reliant on finance and infrastructure, which the HSI has a lot of itself) into a wider variety of Chinese shares. The diversification benefits are obvious (in hindsight) and the performance of Hong Kong equities is yet to be attractive for mainland Chinese buyers, it seems.
- The Hong Kong monetary base was down by almost HK$1.4 billion, which could have contributed to falls. Liquidity isn’t draining from the HKMA channel, but it isn’t expanding due to foreign purchases of Hong Kong dollars either, which would suggest that as soon as there is a bigger, more sustained market rally that eases into stable trading, the closing aggregate balances might start being converted to OEFBN’s. Still too early to tell, and there is still the possibility for a CAB run-up given the HK$ trading at 7.755 to the US dollar.
- NBFIs, however, have increased their position in OEFBNs, which isn’t a particularly good sign. We’re still at very low levels of NBFI-held OEFBNs at below HK$80 billion, but it is not a good sign that these are ticking up, yesterday by about HK$600 million.
Indices covered in this post are the Hang Seng Index- and HS China Enterprises Index futures-implied spot, and the China A50 spot. All charts are due CMC markets, daily candles for the last 9 months, and uses the same underlying chart studies. Again, please see the Watched Charts page for more, and specific data on spot closes as well as volumes. Any line that starts at the very leftmost of any chart is from my most recent long-term technical analysis, and any dashed line is a Fibonacci level off of the same analysis.
Hang Seng Index:
Apologies for the very busy chart of the Hang Seng Index, but on wider views it helps a little bit to get a variety of trade-points, especially for evaluating later which ones hold sway. Right click for full-screen.
It’s been longer than I expected, but it’s been a while since I had a relaxing weekend, and that ended up taking priority. Also, charting can be a handful at times so that was largely what yesterday was reserved for.
I’ve split this up into Hong Kong/China charts, currencies, and precious metals, being presented in that order. Japan has gotten its dues and is not a particularly interesting long-term case since once we crack Nikkei 225’s 17 500 points and the TOPIX 1407 points, we have large upsides before material resistances start showing up. Loose discussions on Japanese equity will be held during the yen-focused currency outlook, but that’s pretty much it. Let’s dig into the charts we have!
Hong Kong / China:
Here is the Hang Seng Index, spot implied from futures prices as per usual on CMC Market’s charts.
Hang Seng Index, weekly candles with 8 years of data.
The Federal Reserve came out and said that they should stop stimulus in the form of QE, which lightly shook markets up. It now takes 1 more yen to buy a dollar, and most currencies seemed to have a 0.6-1% swing weaker against the dollar, but little is seen so far in the equity markets. Sure the Nikkei is up a bit and most others down-to-flat from the Fed decision, but nothing world-changing. This too shall be shaken off, and given the rather spectacular rallies this week across most global indices I would have expected a greater pullback and volatility than what amounts to a shrug of the shoulders.
More interesting instead is revisiting Hong Kong non-bank financial institution (NBFI) liquidity that is sponsored by the HKMA. I tested this data for co integration with the HSI last night and got some great results on this chart:
- The series are most likely cointegrated, with a p-value of still having a unit root in regression residuals of 1.584%.
- The relationship between the non-bank OEFBNs and the HSI is negative as the chart yesterday would describe, with a fall of 13.92 HSI points for every HK$ billion of OEFBNs that non-bank financial institutions hold.
- The regression model is rather good, but given the stationarity of the individual factors spurious regression is too much of a worry with an adjusted R^2 of 0.2182.
- The cointegration lag order term is 8, indicating that it takes eight business days for changes in the non-bank OEFBN value to filter through to the HSI.
- Individual differenced series have less unit root probability so day-trading on this might be problematic, but over a longer period of time this should not be a fundamental concern.
This indicates that short-term, consistent changes in NBFI liquidity only goes out to eight days for prediction power over the HSI. If it influences trends in other ways, daily changes are not time-consistent in their impact and thus become very difficult to model. My interpretation would be that NBFIs can thus transact with relatively active traders or investors – of whom a majority follow the trend – for up to eight days before the market reverses the trend.
For those not familiar, below is a quick recap of cointegration methodology. In addition, I will also note a few technical things about the HSI so far today and yesterday.
I should really calm down when it comes to certain IT valuations, but looking at the markets right now isn’t very much of a consolation! My ribs aren’t broken at least, I guess that’s kinda good…
I won’t really dig into the technicals enough to post another aastocks TA screen dump, but I really think the Hang Seng Index spoke for itself today:
- Volume at HK$53 billion? Lowest since mid-July!
- All the volume went into sales! Ugh…
- Black Marubozu candle pretty much on the day. Not where I would want to be.
- Massive index under-performance to peers! Nikkei futures up 2% on the day? Chinese indices at least up half a percent? The big S&P boost? Nowhere to be seen in the Hang Seng Index!
- We’re below the 252- and 189-day SMA’s again after having punched above in the morning. Those levels around 23 150 – 23 100 are hard to crack!
- Because of the Marubozu, there is a really bad ADX/DMI setup where the positive and negative indicators are kissing, and this will become a rejection due to the Average True Range that ADX/DMI measures off of unless tomorrow’s high price is above 23 300 and tomorrow’s low is considerably above 23 000. Not where I want to be…
Sure, the MACD has been flaring “buy” for a while, but it tends to give a signal once you push a contract around by 10% in a month, and both the RSI and DMI shows signs of not having exhausted the selling pressure. If this would have been touching 22 800 – 22 600 today, it would have made me a bit less queasy, but it does feel like the market is dragging out the long-term fall a bit too far for my tastes. Yes, I get it that net selling into global indices going up between 0.5-2% across the board isn’t easy, but the under-performance and consistent adjustments lower to the price during the day might as well have been an 800-point loss in my book of scares.
Happy Double Ten Day everyone!
It’s the celebration of the start of unrest in 1911 that led to the fall of the Qing Dynasty and creation of the Republic of China, and thus celebrated in Taiwan. Because it happens on the 10th day of the 10th month, it is known as “Double Ten Festival” (雙十節) since the Taiwanese love anything that comes in pairs: double eight (August 8th) is Father’s Day because “8 8” is read “baba” or “daddy”, double seven is a type of valentine’s day which falls on the 7th day of the 7th lunar month, and apparently there is some double 9th thing as well which I can’t really be bothered to look up.
Instead of bothering too much with the new events in Hong Kong where the government has cancelled talks with the protest movement in the face of threats of civil unrest while the negotiations are ongoing, or the market madness occurring due mainly to the Fed Minutes drop late last night, or even the massive typhoon Vongfong bringing lots of rain to Taiwan at the moment and Japan starting later this weekend, I thought I’d be a a little bit more positive. Specifically, I’ll try to start blogging in Mandarin (traditional characters) for small segments that I am doing on Asian news. It won’t be grammatically perfect or particularly advanced, and because of the time it will take me I will only occasionally be doing this on relatively short snippets of news. My first post in this hopefully somewhat frequent segment is a quickie on the technical analysis of the HSI index, to complement my Macau casino outlook yesterday.
Final note before the jump – even though it’s raining like crazy I think I’ll try doing some work-related stuff that I’d be really happy if I could turn in on Monday next week, and then on top of that some background writing and research for a few other posts, so it might be relatively silent for a few days.