There is a view that Chinese stocks have become incredibly cheap compared to their global peers. A report by CEIC shows that the Hang Seng index had a PE multiple of about 10.14 on Friday. 

That makes it a bargain in the world’s stage. In the US, the S&P 500 index has a multiple of 24 while in the UK, the FTSE 100 index has a PE ratio of almost 15. 

The index has also jumped as investors remain optimistic that the Chinese economy has already bottomed. Data from the statistics agency showed that China’s economy expanded by 5.3% in the first quarter, beating the estimated 4.9%.

Therefore, if this trend continues, there is a likelihood that the economy will meet Beijing’s target of 5.0% for the year. A strong China’s growth will attract more foreign investors even as geopolitical risks remain.

Meanwhile, there are signs that the real estate sector is also bottoming, which explains why some big real estate companies have rallied. An index of key property companies tracked by Bloomberg has soared by over 12% since November.

Still, there are significant risks for Hong Kong stocks as the previous bull runs have ended in ruins. There is the issue of the amount of debt held by most local governments, which could hurt its growth. Also, there are ongoing geopolitical risks between Beijing and Washington that could make it difficult for foreigners to buy Chinese companies.

The divide between gainers and laggards in the Hang Seng index is roughly the same. China Hongqiao, a leading aluminum producer, is the best-performing company in the index this year as it jumped by over 68%. It has been boosted by the performance of industrial metals. 

CNOOC, a leading oil and gas company that is also the 12th biggest Chinese firm by market cap, has surged by over 52% this year, helped by the strong oil prices. It is followed by PetroChina, which has jumped by 40.50%.

The other top-performing companies in the Hang Seng are Trip.com, Meituan, China Merchants Bank, and Zijin Mining. All these firms have soared by over 30% this year.

On the other hand, Wuxi Aptech and Wuxi Biologics have tumbled by over 53% this year as it became a target of American politicians. They are working to ban the company because of its links to the Chinese government. Wuxi has denied the allegations and pointed to its many years of operations in the US.

The other top laggards in the index are Sunny Optical, Li Auto, New World, Jd Health, Alibaba, and Budweiser. All these companies have tumbled by over 20% this year. 

HSI chart by TradingView

Turning to the daily chart, we see that the Hang Seng index has been in a strong bull run recently. It has already crossed the crucial resistance at H$17,175, the neckline of the inverse head and shoulders pattern. In price action analysis, this is one of the most bullish patterns in the market, as I wrote here.

The Hang Seng index has moved above the 50-day and 200-day Exponential Moving Averages (EMA) and a golden cross may happen soon. Therefore, the outlook for the index is bullish, with the next point to watch being at $19,900, its highest swing on September 4th.

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