China GDP Beats Expectations; Hang Seng and Shanghai Composite Index To Extend Gains?

HANG SENG, SHANGHAI COMPOSITE – Outlook:

• China GDP and retail sales beat expectations, but fixed asset investment slowed.
• The Shanghai Composite Index has risen above key resistance, while the upward momentum in the Hang Seng Index appears is improving.
• What is the outlook and what are the key levels to watch?

China/Hong Kong equities could be gearing up for another leg higher as the recovery in the world’s second-largest economy picks up steam.

Data released on Tuesday Asia morning showed the Chinese economy grew 4.5% on-year in the January-March quarter, well above 4% expected, and 2.9% in the previous quarter. Industrial production rose 3.9% in March Vs 4% forecast, up from 2.4% in February, retail sales 10.6% last month Vs 7.4% expected, and above 3.5% in February, while fixed asset investment grew 5.1% on-year in the January-March period Vs 5.7% expected.

China Economic Surprise Index

Source data: Bloomberg; Chart prepared in Excel

This follows a string of upbeat China data in recent weeks – Economic Surprise Index for China this month hit the highest level at least since 2014 – reflecting the positive spillovers from the economic reopening. Furthermore, hopes of a turnaround in the property cycle (new homes prices rose in March at the fastest pace in 21 months) and hopes that regulatory crackdown on corporates could be ending suggest the growth spurt could turn out to be more than temporary.

Shanghai Composite Index Daily Chart

Chart Created by Manish Jaradi Using TradingView

Consensus expects about 5.3% on-year growth for China for the year 2023, up sharply from around 4.3% in January. The upgrading in the growth outlook bodes well for China/Hong Kong equities – despite the rebound since late 2022, from a valuation perspective, Chinese equities are trading below the past 20 years’ average.

Hang Seng Index Daily Chart

Chart Created by Manish Jaradi Using TradingView

Shanghai Com: Rises above a key barrier

The Shanghai Composite Index’s break above a key hurdle at the early-March high of 3343, roughly coinciding with the 89-week moving average (the rebound in 2022 ran out of steam at the Fibonacci moving average). The index looks set to retest the mid-2022 high of 3425. Any break above 3425 would trigger a major double bottom (the 2022 lows), potentially opening the way for around 15% — above the 2021 high of 3730.

Shanghai Composite Index Weekly Chart

Chart Created by Manish Jaradi Using TradingView

Hang Seng: Beginning to flex muscles

The Hang Seng Index’s hold above vital support at the December low of 18885 confirms that the higher-top-higher-bottom sequence (that is, an uptrend) from the end of 2022 remains in place. The colour-coded charts suggest the bullish phase in the index has resumed (see chart).

The Hang Seng Index is now testing crucial resistance on a horizontal trendline from early March at about 21000, roughly coinciding with the upper edge of the Ichimoku channel on the daily chart. A decisive break above the resistance could open the door toward the January high of 22700.

Hang Seng Index Daily Chart

Chart Created by Manish Jaradi Using TradingView

Note: In the above colour-coded chart, Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish