The Hang Seng and China A50 indices surged this week as the market reacted to the country’s stimulus package. China A50, which tracks the biggest companies in China, jumped to a high of $13,273, its highest point since August 4, while Hong Kong’s Hang Seng spiked to H$20,633, its highest level since April last year. 

China stimulus hopes

Chinese equities had the best week in over 15 years as investors cheered the latest actions by the government and the central bank.

In a statement earlier this week, the central bank said that it would adjust the reserve requirement by banks. Such a move would unlock over $120 billion, which will be used for lending purposes.

At the same time, China’s officials hinted that they would provide up to $145 billion in stimulus. 

Some of these funds will go to support the stock and housing market, a move that the market believes will be positive.

Not everyone is convinced though. Some analysts believe that these Chinese policies came too soon and that the real impact will take time to be felt. Also, there are concerns about China’s debt, which explains why government bond yields surged by the most in two years. 

China’s stimulus package comes at a time when most central banks are cutting interest rates. In the US, the Federal Reserve slashed rates by 0ver 0.50% last week and hinted that more of them were coming. Hong Kong’s central bank also cut rates because of the currency peg. 

Similarly, other banks like the European Central Bank (ECB), Bank of England (BoE), and Swiss National Bank (SNB) have slashed rates this year. 

Most stocks in the China A50 and the Hang Seng indices bounced back. In Hong Kong, the biggest mover was New World Development, a leading real estate company whose shares jumped by 20% after Adrain Cheng stepped down as CEO. 

The other top performers in the Hang Seng index were Alibaba whose shares soared by over 6%, Galaxy Entertainment, Hansoh Pharmaceutical, HKEX, JD.com, and JD Health. Some of the laggards were ICBC, WH Group, CK Infrastructure, and CNOOC. 

In the mainland China, the top gainers on Friday were companies like Baoshan Iron & Steel, CITIC Securities, Kweichow Moutai, Anhui Conch Cement, and Inner Mongolia Yili. All these stocks jumped by over 20% on Friday. 

Other top China A50 companies were New Life Insurance, China Railway Construction, and China Vanke. 

Hang Seng index analysis

The daily chart shows that the Hang Seng index bottomed at $14,813 earlier this year. It has bounced back, reaching a high of $20,645, its highest level in over a year. 

The index has also formed a golden cross as the 200-day and 50-day moving averages have crossed each other. Most notably, it has jumped above the crucial resistance point at H$19,712, its highest level on May 20.

Oscillators like the Relative Strength Index (RSI) and the MACD have also tilted upwards, pointing to potential momentum. Therefore, the index will likely continue rising as bulls target the next key level at $22,705, the highest point in January 2023, which is almost 10% above the current level. 

China A50 analysis

Like the Hang Seng index, the China A50 index bottomed at 10,642 earlier this year, and has rebounded to a high of 13,273, its highest point since August 2023. It has flipped the important resistance at $12,945 into a resistance level and jumped above the 50-day and 100-day moving averages.

Also, the Relative Strength Index has jumped to the overbought level of 80. Therefore, the A50 index will likely continue rising as buyers target the next resistance point at $14,433, its highest swing in January 2023.

In the near term, however, the Hang Seng and China A50 indices may retreat slightly as the stimulus news fades.

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