Price Analysis
Nov 25, 2022
5 mins read

HK50 Index Drops Lower As COVID-19 Infections Hits Record As Economic Outlook Darkens

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  • HK50 Index moves lower on Friday to trade at 17478.25 at (07:02 UTC+3) amid a downbeat economic outlook
  • China Reports Record HIgh Covid-19 Infection on Thursday
  • Nomura Cuts China GDP targets as Lockdown Spreads
  • JD.Com Shares Drop After Company Cuts Senior Management Pay 
  • Baidu earnings beat by ¥1.52, and revenue topped estimates

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China's main stock index took a hit as concerns over record-high domestic daily COVID-19 cases overshadowed optimism from fresh economic stimulus and missing out on the rise in global stocks to two-month highs. As per the press time, Hong Kong's Hang Seng index (HK 50) is down over 160 points/94% for the day at 17478.25 amid a downbeat mood as covid 19 cases in China continued to rise Thursday.

China reported record-high COVID-19 infections on Thursday, exceeding Wednesday's 31,444 local COVID-19 infections, which broke a record set on April 13, with cities nationwide imposing localized lockdowns, mass testing, and other curbs that are fuelling frustration and darkening the outlook for the world's second-largest economy.


Nearly three years after the pandemic emerged in the central city of Wuhan, the resurgence of infections casts doubt on investor hopes for China to ease its rigid zero-COVID policy soon, despite recent more targeted measures.

The curbs are taking a toll on locked-down residents and output at factories, including the world's biggest iPhone plant, which clashes between workers and security personnel in a rare show of dissent have rocked. Following the increased number of Covid 19 cases in China Brokerage Nomura cut its China GDP forecast for the fourth quarter to 2.4% year-over-year from 2.8% and cut its forecast for full-year growth to 2.8% from 2.9%, which is far short of China's official target of about 5.5% this year. We believe re-opening is still likely to be a prolonged process with high costs," Nomura wrote, lowering its China GDP growth forecast for next year to 4.0% from 4.3%.


Acknowledging pressure on the economy, the cabinet said China would use timely cuts in bank cash reserves and other monetary policy tools to ensure sufficient liquidity, state media said on Wednesday, a hint that a cut in the reserve requirement ratio (RRR) may come soon.

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JD.Com Shares Drop After Company Cuts Senior Management Pay

Hong Kong-listed shares of traded more than 5% lower on Tuesday afternoon after the company confirmed pay cuts for its senior management team. The Chinese e-commerce giant confirmed that it would slash the cash salaries of its senior management team by up to 20%, effective January next year. Logo

The company added that it would pay social insurance fees for Deppon logistics employees and set up a housing fund "The employee benefits improvement plan is currently being promoted, with a focus on front-line staff," the company told CNBC. As per press time, JD.Com stock( Hong Kong 9618) lost 1.90 points/0.95% in the last hour to trade at 198.00.

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Baidu earnings beat by ¥1.52, and revenue topped estimates

Baidu, Inc (Hong Kong 9888) reported third-quarter EPS of ¥16.87, ¥1.52, better than the analyst estimate of ¥15.35. Revenue for the quarter came in at ¥32.54B versus the consensus estimate of ¥31.54B. Following the better earnings report, the stock price closed at ¥94.56. It is down -37.39% in the last three months and 37.17% in the last 12 months. Baidu saw positive and negative EPS revisions in the last 90 days.

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In the HK 50 Index, the best-performing sectors were Communication Services and Real Estate, dominated by The China Unicorn Hong Limited Stock(Hong Kong 0762), which rose 0.17 points/4.25% to trade at 4.16 per Share to top the list of top gainers. Wharf Real Estate Investment Company Ltd Stock(Hong Kong 1997) came in second after it added 2.29%/0.8 points to trade at 35.70 per Share. China Overseas Land & Investment Ltd (Hong Kong 0688) stock closed the list after it added 0.52 points/2.60 % to trade at 20.50 per Share. On the other hand, the biggest losers included ZhongSheng Group Holdings Ltd Stock (Hong Kong 0881) which lost 4.72%/1.75 points to trade at 35.30 per Share. Xinyi Solar Holdings Ltd Stock (Hong Kong 0968) declined 3.50%/0.33 Points to trade at 9.11 per Share. Sunny Optical Technology Group Company Ltd Stock (Hong Kong 2382) shed 3.28%/2.95 points to trade at 87.05 per Share.


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Technical Outlook: HK50 One-Day Price Chart


HK50 One-Day Price Chart

From a technical perspective, using a one-day price chart, the price rebounded from the vicinity of the 17718.97 level, the upper limit of the narrow range it has been confined in since Tuesday. Some follow-through selling would drag spot prices lower towards the lower limit of the narrow range it has been confined in since Tuesday (17385.62 level), and it would act as a barricade against the spot index (support level). A convincing break below this level would pave the way for technical selling around the spot index. The downward trajectory could then accelerate toward the key Demand zone ranging from 15924.10 - 16107.63 but would need acceptance below the 17263.99 (20 Ema level). That said, sustained weakness below the aforementioned demand zone would pave the way for aggressive technical selling around the HK50 spot index.

All the technical oscillators are in positive territory, with the RSI (14) at 53.59 portraying a bullish filter and almost about to move below the middle line (50), while the Moving average convergence divergence (MACD) crossover is above the signal line. Still, a move below the signal line would be a signal for bears to enter the market (it is prudent to wait first for a break below the 17385.62 level before positioning for any further downward move).

On the flip side, if buyers and technical traders jump in and spark a bullish turnaround, initial resistance appears at the 17571.51 level en route to the 17718.97 resistance level. If the price Pierces the aforementioned barriers, buying interest could gain momentum, creating the right conditions for an advance toward the 18475.79 Ceiling.