HK50 Index Soars To Trade Around 6-Month Peaks As Officials Say Worst In COVID Battle Is Over

• A slew of economic news data from China offered some support to China's main stock index 
• Meme Stock Investor Ryan Cohen takes a stake in Alibaba
• Gains in energy stocks, communication, and consumer discretionary primarily supported HK50 Index

China's main stock index rose further on Friday amid Global economic optimism as solid foreign inflows helped sentiment, despite thin trading volumes ahead of the Lunar New Year holidays.

As per the press time, Hong Kong's Hang Seng Index (HK 50) rose over 0.79%/171.4 points to trade at 21935.38 in late trade on Friday after ending slightly lower the day before, heading back to its highest level since last June of 2022, primarily supported by gains in energy stocks, communication and consumer discretionary.

China is set to celebrate the Chinese New Year next week, a week-long holiday that will officially start on Jan. 21. Economists are scrutinizing the holiday season for hints of a consumption rebound in the country.

"Both active managers and asset owners tend to believe the initial phase of the market rally post a trough is almost done, and they were either taking some profits via selling ETFs or rotating from China offshore to onshore," said Morgan Stanley in a note.

They added that most hedge fund managers were keen to continue exploring investment opportunities in the market, only thinking of where to rebalance but not when to sell, believing "the market will soon transit to be more driven by fundamental-related factors".

That said, the primary index got some intraday boost after an unemployment data report showed Hong Kong's seasonally adjusted unemployment rate fell to 3.5% during the October-December 2022 period from 3.7% in the previous running period from September to November, according to data from the city's census and statistics department released Thursday.

Additionally, further lifting the main index was the news that China held its benchmark lending rates at historical lows on Friday, with the government looking to spur a sharp economic recovery this year after the country marked a decisive pivot away from its strict zero-COVID policy.

The People's Bank of China maintained its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR, which is used to determine mortgage rates, was maintained at 4.30%.

Furthermore, data showing COVID hospitalizations had reached the highest since the pandemic began also supported the main index. The data compounded concerns that the COVID wave is spreading to rural areas with poor medical facilities as millions of urban workers travel back to their hometowns for the week-long Lunar New Year holiday, which starts on Saturday.

"While the spread (to rural areas) is expected to some extent, in the unfortunate event of a variant of concern then risk appetite could take a hit," said Christopher Wong, an FX strategist at OCBC Bank.

Recent data also showed that last year, the world's second-largest economy grew substantially slower in 2022. But it performed better than expected in the fourth quarter of 2022, indicating that lifting anti-COVID measures were bearing some fruit.

Meme Stock Investor Ryan Cohen takes a stake in Alibaba

Activist investor Ryan Cohen has reportedly accumulated a stake in Chinese e-commerce behemoth Alibaba (Hong Kong:9988), The Wall Street Journal reported. The stake is worth hundreds of millions of dollars as the billionaire pushes the company to accelerate and boost its share buyback program.

Alibaba (Hong Kong:9988) announced in November that its board has approved boosting its stock buyback program by $15B to $40B, with the end date now pushed forward to March 2025. In the meantime, Mr Cohen told the company that he sees the stock buyback program being expanded by another $20B. As per press time, Alibaba (Hong Kong:9988) is up 2.67%/3 points to trade at HK$115.20 per share.

Going forward, In the FTSE 100 Index, the best-performing sector on Friday was the Energy sector led by CNOOC Ltd (Hong Kong:0883), which rose 4.81%/0.52 points to trade at HK$11.32 per share. The communication sector was followed second, led by Baidu inc (Hong Kong:0883), which added 4.32%/5.40 points to trade at HK$130.50 per share. The Consumer Discretionary came in third, led by the sector led by Meituan (Hong Kong:3690), which gained 4.00%/6.40 points to trade at HK$166.60 per share. 

On the other hand, the worst-performing sector was the Industrials sector, led by Orient Overseas Int (Hong Kong:0316), which lost 4.29%/5.90 points to trade at HK$131.70 per share. The Consumer Staples sector came in second, topped by Hengan Intl Group (Hong Kong:1044), which declined 1.76%/0.70 points to trade at HK$39.10 per share. The utility sector closed the list led by Power Assets Holdings Ltd (Hong Kong:0006), which shed 1.24%/0.55 points to trade at HK$43.75 per share. 

Technical Outlook: Four-Hours HK50 Price Chart

From a technical perspective, using a four-hour price chart price has extended a modest rebound from the vicinity of the 21363.7 level after a firm rejection from the lower boundary channel (key support level) of the ascending channel pattern extending from the early January 2023 swing higher-lows. Sustained strength would uplift spot prices back to January 2023 peak high at the 21960.3 level. Suppose the price manages to move above this key level. In that case, the upward trajectory could accelerate toward retesting the key resistance level (upper boundary channel of the ascending channel), extending from early January 2023 swing to higher highs. A convincing break above the aforementioned key resistance level would pave the way for additional gains around the HK50 Index.

All the technical oscillators are in positive territory, with the RSI (14) at 60.2133 above the signal line and portraying a bullish filter. On the other hand, the Moving Average Convergence Divergence (MACD) Crossover is also above the signal line, pointing to a bullish sign for price action. Additionally, the 50 (red) and 200 (yellow) Exponential moving average crossover (Golden cross) at the 20792.58 level adds credence to the bullish bias.

On the flip side, if dip-sellers and tactical traders jump back in and trigger a bearish reversal, the price will first find support at the key demand zone ranging from 21729.8 -21765.4 levels en route to the 21527.4 support level. Suppose sellers manage to breach these key floors. In that case, downside pressure could accelerate toward retesting the key support level (lower boundary channel of the ascending channel pattern extending from the early January 2023 swing higher-lows). Sustained weakness below the aforementioned key support level (bearish price breakout) will pave the way for aggressive technical selling around the HK50 Index.