Hang Seng Outlook Remains Cautious with Mixed Signals from Wall Street, Fed

Hang Seng, Federal Reserve, Corporate Earnings, Evergrande, Fed Financial Stability Report – Talking Points

• Hang Seng Index remains under pressure with key earnings on tap this week
• Evergrande misses offshore bond coupon payments that were due on Saturday
• Fed Financial Stability Report cites Evergrande, Chinese real estate as major risks

The Hang Seng Index continues to search for clarity amid strong Wall Street earnings and cautious Fed commentary. The US earnings period has seen a clear divergence in performance between U.S. and APAC equity indices. The Hang Seng continues to slide, as market participants remain on edge over Evergrande, Chinese growth, and continued threats of regulatory crackdown. Monday’s session was only the second positive day in the last eleven, with the index retracing a large portion of early October’s gains. Despite the gains, the index continues to hover near monthly lows.

Sentiment remained cautious with the Federal Reserve highlighting several risks in China throughout its semi-annual Financial Stability Report. The Fed pointed to stresses in the Chinese property sector and potential spillover from Chinese financial markets as potential threats to U.S. financial stability. The Fed also touched on Evergrande, stating that the outstanding debt and consequences of default that currently face the company are worrying.

Hang Seng Index Daily Chart

Chart created with TradingView

Market participants may look to an important slate of earnings this week to determine near-term direction. This week sees Tencent, Meituan, and Xiaomi all report, and many will be looking to those reports to see how companies are faring under the new regulatory framework. Market prices may also be buoyed by reports that China will open its border with Hong Kong by June 2022, potentially a light at the end of the tunnel in regard to the pandemic. Despite this, Evergrande remains in focus. Two holders of offshore dollar bonds revealed that they had not received coupon payments that were due on Saturday, which may rekindle fears over a potential default.

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— Written by Brendan Fagan, Intern

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