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In February this year, we called on our readers go short on Hong Kong’s benchmark Hang Seng index as problems continued to mount of the economy, especially due to the higher interest rate in the United States and U.S. trade war against China, https://www.econotimes.com/FxWirePro-Sell-Hang-Seng-index-targeting-at-least-10-percent-decline-1166498 Recently, Societe general published a report suggesting Hong Kong is currently the most vulnerable economy.
Since Hong Kong dollar is pegged to the USD, Hong Kong Monetary Authority (HKMA) raises the interest rates along with the U.S. Federal Reserve in order to keep the peg stable. Since December 2015, HKMA has raised interest rates seven times with the last one being in this month. Hong Kong dollar (HKD) is allowed to float between 7.75 and 7.85 per USD and it is important to note that the HKD is trading at the lower range of the peg around 7.85 per USD since March this year. In a separate article, here, https://www.econotimes.com/Sniffing-a-peg-break-Series-HKD-might-suffer-temporary-breach-in-peg-1265373 we suggested that the HKD peg might break temporarily with a drop to 7.96 per USD.
We clearly expect a further decline in the Hang Seng index. After bottoming in February 2016, over the past two years Hong Kong’s benchmark stock index Hang Seng has risen by almost 84 percent before being hit by the global stock market selloff in late January. With the Federal Reserve set to increase rates by at least twice this year, the Hong Kong’s domestic economy likely to see more tightening, which is not to be good news for the Hang Seng index. In addition to that, the Trump administration’s toughened stance on trade deficit with a special focus on China is also likely to weigh on the index further.
Trade idea:
We called on our readers to go short in the Hang Seng index (HKG33 for CFDs) at the then current rate of 31188 with a 10 percent target (28070) and the stop loss around 33500 area.
This week, the index (HKG33) reached as low as 28150 area and we would like to extend our final target further to 25500 area.
