Trade War Rhetoric Pushes Hang Seng Into Bear Territory

Hong Kong is a special administrative region in China. It is known as one of the largest financial cities in the world. It has a population of about 8 million people and a GDP of $320 billion. The Hong Kong Stocks Exchange has a combined market capitalization of more than $1.2 trillion. The exchange is home to some of the biggest companies in the world such as Tencent, AIA, and Sands China. Because of the global nature of the companies listed in the exchange, the Hang Seng index is often viewed as a barometer of the world’s economy.

In recent weeks, the Hang Seng index has been among the worst performers in the world. YTD, the index has fallen by more than 14%. It is now in a bear territory. A stock or index is said to be in a bear territory when it drops 20% from the previous high.

The reason for the decline is the ongoing trade conflict between the US and China. Early this year, the US started implementing tariffs on Chinese steel and aluminium. It then placed additional tariffs and just last week, Donald Trump said that he was ready to implement tariffs worth $267 billion. Another reason for the decline was the deterioration of Tencent’s stock after China started implementing tough gaming measures that affected its gaming business.

Today, the index is slightly up after news reports indicated that the US was considering having high level trade negotiations with China. The reports came after another report said that the US was likely to team with Japan and European Union to confront China.

The index is now trading at H$26685, which is slightly higher than yesterday’s close of H$26180. This level is slightly lower than the 50 and 100-day moving averages, while the RSI is currently at 38 on the daily chart. For contrarian investors, this will be an ideal point to buy the index. However, in the short term, as the trade war rhetoric continues, the index is likely to continue moving lower.