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The Hang Seng index diverged from its global peers as concerns about the health of the Chinese economy continued. It dropped by 50 basis points as real estate stocks tumbled. In all, the index has barely moved this year while the Nasdaq 100 index has pumped by over 45% this year. Other key indices like the DAX 40 and CAC 40 are all hovering near their all-time high.

Real estate stocks plunge

The Hang Seng index has underperformed its global peers amid rising concerns about the Chinese economy. Economic numbers published on Tuesday showed that the Chinese manufacturing sector remained on edge in July. The manufacturing PMI figure came in at 49.2 in July from last month’s 50.2. 

Meanwhile, there are still lingering concerns about the property sector in China. Two years after Evergrande defaulted, the industry is still in trouble, with many companies reporting huge losses and low demand.

Some analysts believe that China has moved into a situation known as balance sheet recession, which is characterized by a focus on debt reduction and savings. As a result, house prices in China have remained under pressure for a while.

The most recent concerns about the company came on Tuesday when Country Garden scrapped its share placement deal. The company was working with JP Morgan to raise $300 million, sending shivers in the sector. In a statement, the firm said:

“Due to inconsistency in communications with various parties, the company hasn’t managed to sign off the final agreement on a proposed [share placement] plan. The company is also not considering the deal at the current stage.”

As a result, real estate companies were among the worst performers in the Hang Seng index on Tuesday. Country Garden and Country Garden Services stock prices plunged by over 5% while Hang Lung and Longfor Properties dipped by more than 4%.

Hang Seng index forecast

Hang Seng chart by TradingView

The daily chart shows that the Hang Seng index has been in a downward trend in the past few months. It has formed a descending channel shown in black that connects the highest levels since March 6th. The index has moved slightly above the descending channel while the 25-day and 50-day moving averages have made a bullish crossover pattern.

Therefore, the index will likely continue rising as buyers target the next psychological level at H$21,000. A move below the support at H$19,380 will invalidate the bullish view.

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