The recent lack of concrete fiscal stimulus measures following the China NPC Standing Committee meeting has reignited concerns about deflationary and liquidity trap risks in the Hong Kong and China stock markets. As a top investment manager, it is crucial to keep a close eye on key support levels, such as the 19,700 mark on the Hang Seng Index, to gauge the market sentiment and potential future movements.

Stagnation in the Market
Since reaching a 52-week high of 23,242 on 7 October, the Hang Seng Index has struggled to regain its bullish momentum. Despite hopes for robust fiscal stimulus measures accompanying an expansionary monetary policy, the market has faltered, recording a 3.9% loss in October. The downward trend intensified on 11 November as the index dropped by 1.45%, signaling a shift in market sentiment.

Policy Measures and Market Response
The current weakness in the Hong Kong stock market can be attributed to the lack of clarity surrounding promised fiscal stimulus measures from China. While policymakers approved 10 trillion yuan of debt swaps to address hidden debt, there was no significant new stimulus announced to counter potential trade tariff increases. This uncertainty has eroded investor confidence and raised concerns about the efficacy of future stimulus efforts.

Heightened Deflationary Spiral and Liquidity Trap Risks
Despite multiple interest rate cuts and liquidity injections by the PBoC, internal demand in China remains lackluster. Core consumer inflation and factory gate prices continue to decelerate, increasing the risk of a deflationary spiral. This trend has also impacted the 10-year sovereign bond yield and the offshore yuan, creating additional pressure on the stock markets.

Watching the 19,700 Support on the Hang Seng Index
The recent decline in the Hang Seng Index, culminating in a 2.8% drop on 12 November, highlights the fragility of the market. A break below the key support level of 19,700 could lead to further downside, potentially targeting levels at 17,900 and 16,610. Monitoring the daily RSI momentum and key resistance levels will be crucial in determining the market direction in the medium term.

In conclusion, the current market conditions in Hong Kong and China underscore the importance of closely monitoring policy developments and key support levels. As an investor, staying informed about fiscal stimulus measures, inflation trends, and technical indicators can help navigate the evolving market landscape and make informed investment decisions for the future.

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