Hong Kong’s blue chip index (HK50) is testing the resistance at the 2025 highs and could set up an important week.
HK50 – Daily Chart
The price of the HK50 has closed the week at 24,899, testing the resistance level from March. This will be an important week for the index to see if traders start a move higher, or take profits. Support would start at 23,492 for any correction this week.
Bank stocks have been in focus as analysts question the pile of bad loans on their books from property deals. Non-performing loans rose to US$25 billion at the end of March, a two-decade high, according to Fitch Ratings. Some are discussing the need for a “bad bank” but stress that there may be hurdles to creating it.
Hong Kong’s banks are coming under pressure to offload their real estate assets after rolling them over or amending the terms in the past to avoid write-downs.
“We should be seeing more distressed sales – it’s a little alarming that we’re not,” said Jason Bedford, who predicted the troubles that affected Chinese regional banks in 2019.
Lenders such as Hang Seng Bank and Bank of Communications are said to in early talks for a vehicle to offload some bad debts. Such a move could see a rally in the price of banks. The news follows the record US$11bn handed to New World Development in June, which averted a deeper crisis in banks.
“There’s too much supply of commercial real estate, particularly office space, hence we continue to see Hong Kong banks’ asset quality deterioration stemming from the sector this year,” said Fitch’s Savio Fan.
Hong Kong stocks are benefiting from the positive attention of a world-leading year for initial public offerings and the sentiment is good for investment flows. The activity at this week’s resistance level may hinge on global headlines. Traders should watch the week’s move closely around this key level.
