How much higher can the Hang Seng Index go amid hefty China stimulus?

China has finally announced a series of substantial stimulus measures to revive its sluggish economy and boost domestic demand.

 The policies include:

1. Cutting lending rates, mortgage rates, and banks' required reserve ratios.

2. Lowering the down payment for second home purchases from 20% to a historical low of 15%.

3. Introducing a 500 billion yuan swap program to provide funds, insurers, and brokers with easier access to money for stock purchases, along with a 300 billion yuan loan program offering commercial banks cheap funds for share purchases and buybacks.

 Conclusion:

• The Hang Seng Index may edge toward 22,080 points based on technical analysis. A short squeeze could occur if the index surpasses 19,706 (the May high).

• Over the past 20 years, the Hang Seng Index has generally returned 0.51%, 1.64%, 1.06%, and 0.81% in October, November, December, and January, respectively. I reckon the index could potentially rally from now until January based on positive seasonality.

• PDD (PDD US), Tencent ( $TENCENT(00700)$ ), Meituan ( $MEITUAN-W(03690)$ ), BYD ( $BYD COMPANY(01211)$ ), Hang Seng Index ETFs ( $ISHARESHSI(03115)$ ), and Hang Seng Tech ETFs ( $LION OCBC HSTECH ETF S$(HST.SI)$ , HSS SP, 3032 HK, 3067 HK) are some preferred ways to gain exposure to the potential China market rally.

Hang Seng Index Chart

Source: Bloomberg, 25 Sep 2024

Hang Seng Index 20-year Average Performance

Source: Bloomberg 25 Sep 2024