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Hang Seng still in bear market territory despite best month since 1998

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Red lanterns are hung up on the road in Wan Chai, Hong Kong. (Photo by Zhang Wei/China News Service via Getty Images)

China News Service | China News Service | Getty Images

Hong Kong’s benchmark index soared 26.6% in November – the Hang Seng index’s highest monthly gain since October 1998, or near the tip of the Asian financial crisis 24 years ago.

However the index still sits in bear market territory, which is defined as down 20% from a recent high, standing at a lack of 20.45% loss year-to-date as of Dec. 2.

Hong Kong’s economy, including its stock market, has been battered by Beijing’s prolonged zero-Covid policy that has shut out travelers from mainland China and dampened consumer confidence. Shares listed in Hong Kong have whipsawed between sell-offs and rallies inside a single trading day on unconfirmed rumors that hinted at a shift in China’s policies.

The volatility within the Hong Kong stock market, nonetheless, dates back even further than this 12 months. Strategists at Goldman Sachs said from February 2021 to October 2022, the Hang Seng index saw a “systemic correction,” which the firm defines as a fall of 40% or more.

That is essentially the most significant market sell-off for the reason that dislocation in the course of the Global Financial Crisis

Kinger Lau, Si Fu

Goldman Sachs China equity strategists

During that period, the HSI plunged 53% from peak-to-trough, Goldman strategists noted.

“That is essentially the most significant market sell-off for the reason that dislocation in the course of the Global Financial Crisis, also putting the drawdown into the Systemic category per our classification,” the firm’s China equity strategists Kinger Lau and Si Fu told CNBC in an email.

The team added that it’s “unattainable to call the market bottom” for the index, based on its trading patterns, which has shown major volatility up to now two years.

Next key levels

Analysts at Weiss Multi-Strategy Advisers said, “November may, in hindsight, be viewed as a key turning point for Chinese equities,” noting the Hang Seng China Enterprise index and the property sector saw significant gains.

“Property stocks were boosted by relaxed collateral and equity issuance standards, and tech stocks have been strong on earnings and reopening hopes,” the analysts said in a report.

Read more about China from CNBC Pro

After its November gains, the Hang Seng index hovered around 18,600 – a level of resistance in response to market watchers.

“With the 18,600 level of resistance being overcome for the Hang Seng Index, that would seem to put the important thing psychological 20,000 level on watch,” IG market strategist Yeap Jun Rong said in a Thursday note.

He added the most recent messaging from the Chinese government, including health officials encouraging elderly vaccination and broader signs of shifting away from its zero-Covid policies, has lifted the region’s stock market.

“Recent events have been supportive of the worst-is-over stance for Chinese markets,” he said, adding that the events have led to a “much-needed calm” to Chinese equities that proceed to push higher on reopening hopes.

The HSI last fell below the 20,000 level in August, and analysts expect to see a continued rebound within the equity market on further signs that the nation will shift away from zero-Covid.

In a previous report, the strategists at Goldman Sachs said they expect to see a 20% rally within the Chinese stock market when the country reopens.

The strategists said the monthly stock performances seen in November support that view.

“These cycle analyses point to a strong prospect that the market could stage a recovery rally sometime in 2023 after a really difficult performance up to now 2 years,” they said in an email to CNBC.

“The reopening catalyst could help fuel the cycle shift to a ‘Hope’ phase,” they said, “where equity valuations are likely to expand [or] get better despite a still-challenging earnings outlook.”

— CNBC’s Evelyn Cheng contributed to the story

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