Mini HSI Futures: Position for tactical rally on monetary easing
Our View
We hold a favorable view of the Mini HSI Index Futures contract in the short-term on likely policy stimulus; but we prefer to wait out any short-term corrections before positioning for a near-term tactical rally.
Due to medium-term structural concerns and still-weak confidence among businesses and consumers, it will be a while before the market trades on economic and corporate fundamentals.
Key market drivers for 2024 include China’s growth trajectory (influenced by government stimulus, property sector woes, deflation risks), US interest rate trajectory, and geopolitics.
From a valuation perspective, the Hang Seng is trading at a Last 12 Mths P/E ratio of 8.7x, well below its 5Yr average of 11.3x. This is in contrast to a P/E ratio of 22.5x for the S&P 500.
Investors from mainland China have been a net buyer of HK stocks for the past 4 sessions, with data showing investors bought a net HKD 2.15bn of HK shares thru the stock connect program on 4th January.
We expect to see the PBOC delivering RRR and/or interest rate cuts in 2024. The PBOC recently weakened its yuan fixing by the most in over 6 months, signalling that policymakers may be shifting their focus from stabilizing the yuan to more monetary easing in a bid to revive growth.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long Mini Hang Seng Index Futures:
The contract saw a bearish reversal from around the 17,050 level (orange line), which was a vital support level that was broken in early December, but now serves as a key support-turned-resistance level.
With a Fibonacci Retracement drawn from the December low on the 4-hourly chart, we prefer waiting out any short-term correction and taking entry near the 0.618 retracement level at 16,465. We set our target level at 17,050, and stop loss at the 0.786 retracement level around 16,250. This setup delivers a reward: risk ratio of 2.76x.
• Entry Level: 16,465
• Target Level: 17,050
• Stop Loss Level: 16, 250
• Profit at Target: 585 ticks x HKD 10
• Loss at Stop: 215 ticks x HKD 10
• Reward: Risk Ratio: 2.76x
We hold a favorable view of the Mini HSI Index Futures contract in the short-term on likely policy stimulus; but we prefer to wait out any short-term corrections before positioning for a near-term tactical rally.
Due to medium-term structural concerns and still-weak confidence among businesses and consumers, it will be a while before the market trades on economic and corporate fundamentals.
Key market drivers for 2024 include China’s growth trajectory (influenced by government stimulus, property sector woes, deflation risks), US interest rate trajectory, and geopolitics.
From a valuation perspective, the Hang Seng is trading at a Last 12 Mths P/E ratio of 8.7x, well below its 5Yr average of 11.3x. This is in contrast to a P/E ratio of 22.5x for the S&P 500.
Investors from mainland China have been a net buyer of HK stocks for the past 4 sessions, with data showing investors bought a net HKD 2.15bn of HK shares thru the stock connect program on 4th January.
We expect to see the PBOC delivering RRR and/or interest rate cuts in 2024. The PBOC recently weakened its yuan fixing by the most in over 6 months, signalling that policymakers may be shifting their focus from stabilizing the yuan to more monetary easing in a bid to revive growth.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long Mini Hang Seng Index Futures:
The contract saw a bearish reversal from around the 17,050 level (orange line), which was a vital support level that was broken in early December, but now serves as a key support-turned-resistance level.
With a Fibonacci Retracement drawn from the December low on the 4-hourly chart, we prefer waiting out any short-term correction and taking entry near the 0.618 retracement level at 16,465. We set our target level at 17,050, and stop loss at the 0.786 retracement level around 16,250. This setup delivers a reward: risk ratio of 2.76x.
• Entry Level: 16,465
• Target Level: 17,050
• Stop Loss Level: 16, 250
• Profit at Target: 585 ticks x HKD 10
• Loss at Stop: 215 ticks x HKD 10
• Reward: Risk Ratio: 2.76x