Hong Kong’s Hang Seng had its best month since 1998, but remains in bearish territory

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

But the index is still in bearish territory, which is defined as a 20% decline from a recent high, with a loss of 20.45% year-to-date to Dec. 2.

Hong Kong’s economy, including its stock market, has been battered by Beijing’s protracted zero Covid policy which has shut out travelers from mainland China and undermined consumer confidence. Hong Kong-listed stocks swung between selling and rallying in a single trading day on unconfirmed rumors hinting at a change in China’s policies.

Hong Kong’s stock market volatility, however, goes back even further than this year. Goldman Sachs strategists said that from February 2021 to October 2022, the Hang Seng index experienced a “systemic correction”, which the company defines as a drop of 40% or more.

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

“This is the market’s largest selloff since the breakup during the global financial crisis, also placing the pullback in the systemic category by our classification,” the firm’s China equity strategists Kinger Lau told CNBC. and Si Fu, in an email.

The team added that it is “impossible to call the bottom of the market” for the index, based on its trading patterns, which have shown major volatility over the past two years.

Analysts from Weiss Multi-Strategy Advisers said, “Looking back, November can be seen as a key turning point for Chinese equities,” noting that the Hang Seng China Enterprise Index and the real estate sector posted significant gains.

“Real estate stocks were boosted by the easing of collateral and share issuance standards, and tech stocks were strong in terms of earnings and reopening hopes,” analysts said in a report.

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

“With the 18,600 resistance level breached for the Hang Seng Index, this might appear to put the key psychological 20,000 level under scrutiny,” IG market strategist Yeap Jun Rong said in a Thursday note.

He added that the latest messages from the Chinese government, including health officials encouraging vaccination of the elderly and broader signs of abandoning its zero-Covid policies, have lifted the region’s stock market.

“Recent events have supported a worst-case stance for Chinese markets,” he said, adding that the events have led to a “much-needed calm” for Chinese stocks which continue to push higher on the reopening of markets. hopes.

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

In an earlier report, Goldman Sachs strategists said they expected to see a 20% rally in China’s stock market when the country reopens.

Strategists said the monthly stock performance seen in November supported this view.

“These cycle analyzes indicate a strong prospect that the market could stage a recovery rally sometime in 2023 after a very difficult performance over the past 2 years,” they said in an email to CNBC.

“The catalyst for reopening could help fuel the cycle’s shift to a ‘hopeful’ phase,” they said, “where equity valuations tend to rise [or] recover despite a still difficult earnings outlook. »

– CNBC’s Evelyn Cheng contributed to the story