Resistance held on the index of Hong Kong’s 50 largest companies, warning of a bearish risk this week.
HK 50 – Daily Chart
The HK 50 index made another push higher to test the recent highs ahead of 26,000. That was also the uptrend line from April, giving a double obstacle. Caution would be advised this week, unless last week’s high is breached.
Selling came last week despite a recent easing of IPO rules aimed at keeping the market on an upward trend. New Regulations came in last week, designed to keep investor interest high in the market for offerings. The maximum amount of shares allocated to retail investors will now be set at 35%, down from 50%.
The changes came as Hong Kong became the hottest IPO destination in global markets. Regulators want to make sure that institutional interest remains high. Another rule change means that shares already listed in mainland China can now offer 10% of total shares to secure a Hong Kong listing, down from 15%.
There is a risk that the market may reach a peak after investment flows hit a record. Southbound net inflows expanded to HK$800 billion in July, just ahead of the 2024 record of HK$808 billion.
The market sentiment in the HK 50 has been hurt by recent selling in airline Cathay Pacific after management warned of a tougher outlook. The stock has lost some of its year-to-date strength after a loss of -8% over the last month.
Last week saw another hot IPO with shares of Guangzhou Innogen Pharmaceutical Group soaring on their debut. Investor interest in China’s pharmaceuticals sector led to Innogen (2591) being priced four times above its IPO level.
The market has a strong investor appetite, but the recent resistance at the July high is a warning of a possible near-term correction. There is a collection of support levels between 23,000 – 24,000.
