HANG SENG, SHANGHAI COMPOSITE INDEX – Outlook:

• China manufacturing activity rose a bit in June.
• China non-manufacturing activity eased in June.
• What is the outlook for the Hang Seng Index and the Shanghai Composite Index?

China/Hong Kong equity indices were steady amid hopes of a broader stimulus after data showed manufacturing activity in China rose slightly while non-manufacturing activity softened in June.

China NBS Manufacturing PMI advanced to 49.0 in June, in line with expectations, compared with 48.8 last month. China’s NBS Non-Manufacturing PMI slipped to 53.2 in June from 54.5 last month. This follows data on Wednesday that showed annual profits at China’s industrial firms tumbled 18.8% on year in the first five months of 2023, compared with a 20.6% contraction in January-April.

China’s economic data have underwhelmed since April, raising concerns that the post-Covid economic rebound has run out of steam. The Economic Surprise Index is now back near levels before the economic reopening earlier this year. As a result, consensus economic growth forecasts for China for the current year have been downgraded in recent weeks.

Beijing has announced measures to support the economy, including cutting key lending benchmarks and a 520-billion-yuan package on new-energy vehicles. Premier Li Qiang said on Tuesday China will roll out more effective policy measures to expand domestic demand.

Hang Seng Index Daily Chart

Chart Created by Manish Jaradi Using TradingView

Hang Seng Index: Upward momentum lacking

On technical charts, the Hang Seng Index has been weighed by stiff converged resistance on the 89-day moving average and the upper edge of the Ichimoku cloud on the daily charts. Unless the index is able to clear the April high of 20865, the path of least resistance remains sideways to down. Moreover, a fresh six-month low hit at the end of last month reaffirms the near-term bearish backdrop. Initial cushion is at the end-May low of 18045, followed by the end-2022 low of 16830.

Shanghai Composite Index

Chart Created by Manish Jaradi Using TradingView

Shanghai Composite Index: Downward bias

The break last month below key support on a horizontal trendline from December confirmed that the seven-month-long uptrend is over. This week’s fall to a six-month low further reinforces the bearish bias. Immediate support is at Monday’s low of 3145, followed by 3090 (the 61.8% retracement of the October 2022-May 2023 rise). Stronger support is at the December low of 3030.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish