上海滩还是上海瘫 - a special note on SGX's HK SDRs

AI image generator asks 'The Bund or The Bun?'

On Monday 16 Dec 2024 10.03pm, I emailed Clients my latest post titled '上海滩' 还是 '上海瘫'? - Also a special note on SGX's HK SDRs.

Below is the full transcript for your perusal:

'Dear Clients,

As some of you may know, I manage two dealing desks simultaneously - one dedicated to my personal clients and another at the Phillip Tai Seng Satellite Office. This has kept my schedule incredibly packed, and I sincerely apologize if I’m unable to respond promptly to non-urgent administrative matters. That said, I remain committed to sharing my market outlook and updates whenever possible!

A Look Back at May 2024:

In my 13 May 2024 memo ('The East is Red!'), I used classical technical analysis to highlight the Inverse Head & Shoulders breakout in the Hang Seng Index (HSI) at the 17,200 level. I projected a minimum upside target of 19,600. Similarly, for the Shanghai Composite Index (SSECOMP), I identified a bullish reversal pattern, setting a target at 3,540.

On 20 May 2024, the HSI hit a high at 19,706, while SSECOMP reached 3,174. At this juncture, I cautioned many clients that SSECOMP’s market strength didn’t seem as robust vs HSI, hinting at a potential pullback. See whatsapp msg A below (end of memo).

As anticipated, both indices eventually retraced 15-16% by Aug 2024.

Fast Forward to September:

In early September, the People's Bank of China (PBOC) unveiled a larger and more comprehensive plan to stabilize the economy and restore investor confidence namely monetary easing, real estate market support & financial markets liquidity support.

Now on my side, learning from past experiences with the Chinese markets, in early October I advised clients again against chasing the rally and specifically mentioned that sustained commitment and continued easing measures & liquidity support from the Chinese government would be crucial for success. See whatsapp msg B123.

Today, both indices appear to be still in a correction phase within an existing uptrend:

HSI: Retraced 61.8% of its gains from Oct highs (Fibonacci retracement).
SSECOMP: Retraced a lesser 50% of its gains from Oct highs, thereby showing relatively stronger index strength vs HSI.

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Key Takeaways so far from China's methodology to reviving its economy and markets:

China is in NO denial of its major economic challenges, including property sector fallout, diminishing wealth effects, and the incoming trade war with the US and the CCP (Chinese Communist Party) appears to be committed to addressing these issues.
However, their approach diverges from the U.S. capitalism style of heavy monetary injections - China may have favored a "slow & steady" and “creative destruction” approach.
There’s speculation that the CCP may be awaiting Trump’s return to Presidency in Q1 2024 to recalibrate their economic measures, including the tried & tested currency depreciation strategies during Trump's first term.

While I’m neither an economist nor a politician, one thing is clear to me: without timely intervention to address issues like escalating youth unemployment, declining property prices, and weakening economic growth and signs of deflationary price pressure for the years ahead, China could face significant social issues among Chinese youths in the future and I am hopeful the CCP understands the full repercussion of this.

Technical Outlook – SSECOMP Leading the Charge:

Currently, SSECOMP shows stronger relative strength and leadership vs the HSI.

With a variant of the bullish Symmetrical Triangle (line chart) being manifested on the daily SSECOMP chart, a sustained close above the November 2024 high of 3,509 could signal more bullish momentum, while a breakdown below the upward sloping trendline of the Symmetrical Triangle would have bearish implications. See Chart 1.

While I typically lean toward a directional bias, I remain neutral in this case. The unpredictability stems from the Chinese Communist Party (CCP) diverging from the typical Western capitalist playbook, adding uncertainty to market dynamics.

If the index breaks upward, its reputation as '上海滩 (The Bund)' is reaffirmed.

Conversely, a downward move may earn it a less flattering nickname '上海瘫 (The Bun)', pun intended. Well, nothing is more bearish than a breakdown in a bullish setup!

For the more technically-inclined clients out there, you may wish to drop me a line for the upside targets, should the index breaks out.

Chart 1 - SSECOMP Daily 6-mth. The Bund or The Bun, no pun intended

Investment Consideration – Valuations and Opportunities

China Portfolio Strategy:

Notwithstanding my neutrality, there is no doubt Chinese valuations are significantly cheaper relative to many other DMs (developed markets). For clients looking to set up a China/Hk stocks portfolio, the Singapore Exchange's recently launched Hong Kong Depository Receipts (HK SDRs) offer a fuss-free and quick alternative to buying overseas Hong-Kong listed companies directly.

Benefits of SGX's HK SDRs:

Greater flexibility in Market Access:
Allows investors to tap into Hong Kong’s mega-cap companies with bite-sized investment amounts ranging 2% to 15% of the underlying shares. Trades can be conducted ahead and after Hong Kong market hours during the 9-930am and 4-5pm windows respectively.
Cost Efficiency:
Lower brokerage fees, no foreign exchange fees (transactions settled in SGD), and no custody fees for shares held in CDP accounts.
Convenience:
Trades are conducted and settled in SGD and dividends are also paid in SGD. HK SDRs are custodised with CDP, making it easier to manage alongside other SGX holdings.

The five key HK SDRs available on SGX are:

Tencent Holdings
Alibaba Group Holding
Bank of China
HSBC Holdings PLC
BYD

Buying these 5 SDRs will give you a quick representation of the Tech, Financials, and Consumer Discretionary sectors of the Hang Seng Index. Now if SGX could just add into the mix an Oil & Gas, Healthcare & Infrastructure SDR, that will be almost perfect.

Feel free to drop me a line if you have questions on the HK SDRs or click here for more infomation.

Live Long & Trade Well!

Thank you & regards,

Thomas Ng, CMT

Principal Trading Representative

首席股票经纪

www.thom-ng.com

#plsreaddisclaimer #chartforillustrationonly #SSECOMP13dec24 #whatsyourtradingangle #tradesgx

Chart source: Tradingview'