Hang Seng Helped by Inflation Rebound & Xiaomi’s Surge on EV Delivery Date

HKG33 Analysis

The Hong Kong index rises today, helped by the 10%+ jump of Xiaomi, one of its biggest constituents. The move comes after its CEO tweeted that domestic deliveries of its first EV will begin before the end of March ^[1]. The Chinese smartphone maker has been working on an electric vehicle for around three years and recently unveiled the SU7 Sedan, aspiring to become one of the top five automakers globally ^[2]. Markets cheered the news of the delivery date, which is in stark contrast with a recent Bloomberg report that Apple is dismantling its EV team ^[3], underscoring the tech giant's lack of innovation.

HKG33 had already made a strong start to the week, after weekend data showed a much needed rebound in consumer inflation. CPI rose 0.7% y/y in March, which the highest in nearly a year and the first positive reading since August. This shows that Beijing's efforts to boost consumer demand may be working.

The index extends its recovery form the 2024 lows and now eyes the 200Days EMA (at around 17,460) and the 38.2% Fibonacci (of the 2023-2024 slump). However, we are cautious around the ascending prospects. Technically the RSI points to overbought conditions, which can contain the advance and lead to return below the EMA200 (at around 16,310). This would shift bias to the downside although the February will need strong catalyst (15,247).

It's too early to call the end of deflation and things deteriorated on the producer side, as PPI deepened its contraction to -2.7%. Chinese officials may have set an optimistic growth target of around 5% this year, but this may be hard to achieve. The economy is struggling, the property market remains in peril, consumers keep their purses tight and factory activity is weak. Beijing has adopted a piecemeal approach, failing to inspire markets and now policymakers lowered the budget deficit to 3% (from 3.8% previously), which implies that big stimulus will likely remain elusive. ^[4]