Hong Kong’s equity market tumbled on Thursday afternoon, probably triggered by PBOC governor Zhou Xiaochuan’s warning about a ‘Minsky Moment’ at an event on the sidelines of the 19th Communist Party Congress in Beijing. 

‘Minsky Moment’ refers to a collapse in a market value following the exhaustion of the credit expansion cycle. Subsequently, the Hang Seng Index tumbled more than 550 points, or 1.9% in the last two hours of trading yesterday. 

Some analysts believe the market has overreacted to Mr Zhou’s comments, as he didn’t specify when and where the next ‘Minsky Moment’ might happen. Another reason behind the sell-off is probably the strong need for profit taking after a year-to-date gain of nearly 30%. 

On the other hand, fundamentally there seems to be optimism; China has registered 6.8% growth in the third quarter, in line with market expectations. The figure showed that China’s economy was running smoothly in the first three quarters of this year, beating the government’s earlier guidance of 6.5%. The economic structure was improved, with service and emerging industries continuing to drive more organic economic growth.  

Technically, the Hang Seng’s immediate support and resistance levels are at 27,900 and 28,900 respectively. 

The sudden sell-off in the Hong Kong market triggered a risk-off mood across Asian and European markets. The Singapore market was dragged down by Hong Kong as well, wiping out earlier gains, closing at 3,327 points. Property and manufacturing sectors continued to outperform the benchmark index, buoyed by favourable sentiment and growth prospects.

Strong US earnings helped to underpin weak sentiment from Asian trading hours. The S&P500 index closed marginally higher, while the Nasdaq lost 0.3% mainly because of disappointing orders for the iPhone 8. 

Technical Analysis:

Hong Kong 50 - Cash

  • 10-Day Simple Moving Average and SuperTrend both sloped upwards
  • Facing some resistance at the 28,900 area (200% Fibonacci retracement)
  • Immediate support level at the 27,900 area (161.8% Fibonacci retracement) 
  • Momentum indicator MACD is still trending upwards, suggesting bullish momentum dominates

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