China/Hong Kong equities are testing crucial support areas that could define the trend for the next few weeks, possibly months. What is the outlook and what are the levels to watch in the Hang Seng Index and the CSI 300 Index?
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As highlighted in the previous update, attractive valuations compared with some of its peers, generally oversold conditions, and higher risk premia argue for a turnaround in Hong Kong/China equities. The catalysts, however, appear to be lacking.A failed attempt to rise past a key ceiling at the mid-June high of 20155 has put the Hang Seng Index back within its well-established range since June.
It is now testing crucial support at the June low of 3780. Any break below could pave the way toward 3675 initially, possibly the October low of 3495.
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