Hong Kong – Fundamental Over Technical

The argument between fundamental and technical analysts never ends – it’s the financial markets equivalent of science’s “nurture versus nature” argument. While there are extremist supporters of each discipline, many modern traders take a pragmatic approach, and draw on information from both the “real world” and charts. But what do the moderates do when technical and fundamentals disagree?

The Hong Kong 43 Index (tracking the Hang Seng) is up an astonishing 31% since June 2012. The reasons seem clear – the HK market traded at a substantial discount as fears of a “hard landing” in China and a consequent property crash weighed on investors. Financial stocks dominate the HK market, making up 60% of the value of the index – 37% banks and 12% real estate groups. Any property slump in China would decimate earnings and balance sheets. With growth stabilising in China, and no signs of a property market crash, the Honk Kong 43 roared back:

Hong Kong 43 – Daily

201230123 hk43

The break above 21,700 saw an acceleration, with the index drawing away from and above the trend line. Many chartists will see this as a possible shorting opportunity. The up  trend is turning exponential, there’s key resistance just ahead around 24,400, and the RSI is in over bought territory.

However, not only is this possibly a poor trade, there is a strong argument for going long on any pullback towards the trend line – or indeed right now. The dividend yield, with no growth factored, is just under 3%. The trailing  Price to Earnings ratio for the Index is 12x – the forward estimates for the next three years are 11x, 10x and 9.5x. And volatility is at 5 year lows.

How traders use this information will depend on their trading strategy. Traders who identify opportunities with fundamentals, and use charts for entry and exit points, are much more likely to buy the Hong Kong 43.

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Market, Shares, Stocks, Trading and tagged , , , , . Bookmark the permalink.

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