Hang Seng Tech, USD/CNH: Tide Turning on Bearish China Sentiment?

• Hang Seng Tech rallies past 20% bull market threshold, momentum strong
• Tech valuations remain cheap—can the rally sustain if sentiment shifts?
• USD/CNH breaks key support, hinting at further downside risk.

Summary

Whether driven by DeepSeek, easing trade tensions with the United States, cheap valuations relative to Western markets, or simply optimism that the economy has bottomed following an engineered property construction downturn, sentiment towards Chinese assets—both stocks and the yuan—has improved noticeably in recent weeks.

Hong Kong’s Hang Seng has led the charge, fueled by strong gains in tech stocks. The Tech Index trades at 17.4 times forward earnings despite being in a bull market—well below the five-year average of 24.5 times—suggesting room for the rally to extend, particularly if offshore investors unwind underweight positions in Chinese equities.

This note will outline key levels on Hang Seng and Hang Seng Tech futures, as well as USD/CNH, providing a basic framework for assessing future trade setups.

Hang Seng Futures

Source: TradingView

Hang Seng futures are on the cusp of entering a bull market, with gains from early January’s lows now approaching 19%. The trend remains strong, aligning with bullish signals from momentum indicators like MACD and RSI (14), favouring buying dips and bullish breaks in the near term.

A gradual pickup in trading volumes strengthens the bullish case, contrasting with the unsustainable surge seen last September when the government attempted to revive mainland equity markets. This move looks more durable.

Futures are overbought on RSI (14), making entry, target selection, and stop-loss placement crucial. Patience may pay off for those waiting for an optimal setup.

Key downside levels to watch are 21,728, 21,377, and the January 13 uptrend. On the topside, 22,500 may attract sellers, though visible resistance is limited until the September 2024 double top at 23,330. Beyond that, 23,870 was a key level in 2021, seeing significant price action on both sides.

Hang Seng Tech Futures

Source: TradingView

Like broader Hang Seng futures, Hang Seng Tech futures remain in an established uptrend but have already cleared the 20% threshold for a technical bull market.

MACD and RSI (14) continue to trend higher, reinforcing a bullish bias, though RSI is now in overbought territory and diverging from price—a potential signal of a near-term pullback.

Earlier this week, 5,300 capped gains, but with price now above that level it may flip to support. Below, 5,140 and the January 13 uptrend are levels to watch. On the topside, bulls will be eyeing the October 2024 high of 5,484, with a break opening the door for a potential push towards the January 2022 high of 6,010.

USD/CNH

Source: TradingView

USD/CNH is showing signs of turning lower, breaking beneath the intersection of horizontal and uptrend support at 7.3000. Bids emerged below 7.2800 earlier this month, making it a level to watch for those considering short setups after Thursday’s downside break.

Below, 7.2400 has repeatedly drawn in buyers in recent months, with 7.2130 and 7.1400 additional downside levels of interest.

Momentum indicators remain mixed, favouring a neutral bias. RSI (14) has broken its uptrend, hinting at bearish momentum, though MACD has yet to confirm the signal.

-- Written by David Scutt

Follow David on Twitter @scutty