The last story of the week is about resurging tensions between the US and China. The bone of contention -this time- looks related to a new national security law that Mainland will impose on the city of Hong Kong. Details of the draft legislation were announced Friday when China’s National People’s Congress (NPC) held its annual session. The laws would reportedly ban secession, foreign interference, terrorism and all seditious activities aimed at toppling the central government and any external interference in the former British colony.
This immediately sparked reaction by US Senators that have already proposed a bill sanctioning Chinese Officials and limiting their chances of making business with some financial institutions. Among the rows, other issues like a 6.6% rise in the asian country military spending or the tension about the “Open Skies Arm Control Treaty” involving the triangle US-Russia-China.
The result? Some due risk off sentiment, with Global Futures down around 1% (since 00.01 AM GMT, I mean), Crude Oil down 7%, metals retrating and Hang Seng down 5%. Have a look at this last one.
Hang Seng Daily
Last 1.5 months, range has gone in a few hours, like it used to happen in a down move; previously it even looked like a downtrend could have been broken but false breaks are normality in mature markets. So now the first support is close to 22700, then lows bound. Considering how high the leading equity market -US- is trading, in the case the sentiment could sour there would be a lot of room to the downside for less performing indices (all of them?)
The other day I went through many stocks composing American indices -something that I’m not used to do daily. It was really interesting to see how many companies -from financials to transportation to energy- are trading WELL OFF THE HIGHS despite the very high valuation in indices. I’m starting to think that the capitalisation weighted method is somehow too much distorting or -at least- much lower cap should be introduced. However, Index building companies know very well what they are doing.
By: Marco Turatti