Hang Seng Drops due to Risk-Off Mood Despite Encouraging China GDP

HKG33 Analysis

The Iranian attack on Israel over the weekend has sparked risk-off mood, as markets fear an escalation and a spillover of the Middle East hostilities. The Israeli government has vowed to respond, warning that Tehran "must pay a price for its aggression". ^[1]

HKG33 is weighed by the risk aversion and the better than expected GDP from China could reverse the negative sentiment. First quarter GDP came in better than anticipated, as the economy grew by 5.3% y/y and 1.6% q/q, with the latter being the biggest expansion in a year. That is a strong print, but the rest of today's data were not as encouraging. Industrial production at 4.5% y/y and retails sales at 3.1% y/y, marked the smallest increase in at least six months. China's recovery continues to be rocky, with weak consumer demand, subdued factory activity despite the March expansion and the property sector in distress.

HKG33 pierces the daily Ichimokou Cloud and is in risk of falling below its lower order, that would expose it to 15.247. On the other hand, the RSI moves to oversold condition and the fall could be contained. Although we can see a return above the EMA200 that would pause the bearish bias, current conditions (technical and fundamental) are unfavorable for a sustained recovery past towards the 38.2% Fibonacci of the 2023 high-2024 low drop. Despite the risk aversion, so far all side appear to maintain a low profile. Iran has pointed to an one-off strike, Israel has not yet launched a counter-attack and the US does not seem willing to be dragged into the fight.