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. The index, which is down more than 6.5 percent from its peak, is currently trading at 33188. We suspect that a further decline in the index is very much likely.
Since 2016, the U.S. Federal Reserve has hiked interest rates 5 times, so did the Hong Kong Monetary Authority and the reason behind this that the Hong Kong Dollar (HKD) is pegged with the U.S. Dollar around 7.8 HKD per USD. To maintain the peg, which has been in place since 1983, HKMA raises and reduces interest rates along with the U.S. Federal Reserve.
With the Federal Reserve set to increase rates by at least thrice this year, the Hong Kong’s domestic economy likely to see more tightening, which is not likely 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.
Trade idea:
Our calculations at FxWirePro suggests that the index, which is trading at 31188 as of today likely to decline at least 10 percent and possibly more. We would like to urge our readers to go short on Hang Seng index with the stop loss around 33500 area.
