After thought of HKD and China indices

In my last post, I mentioned of thinking about an after-thought entry on HKD. One of the reason was that I felt something is lacking. This mainly about the point that China needs USD. 

It is my belief that China economy has not been doing well for years. Its market in saturation, overcrowding competition leading to price focus and a lack of innovation even though with such large population. 

The events that follows such as trade war with USA and China's obsession with country lock downs to tackle during Covid-19 did more harm than good to the economy.

However, the one and only killer to China is the 5,000 years of Chinese culture itself.  Many might think that with 5,000 years of history, Chinese culture is rich and diversified.  Yet as a descendent with Chinese lineage, I find Chinese culture to be very closed and confined, drawing a line to confine Chinese to within our community. 

In Psychological term, we can classify the Chinese behavior as centripetal nature, it is hard for Chinese to break out of the gravitational pull while rejecting foreign influences. Since young we Chinese are taught the tradition that we have, the rules we need to follow. 

Chinese New Year for instance, while with grandiosity and richness, is a very suffocating event for me for years. To be honest, the Chinese New Year during Covid-19 lock down was in fact the best I had, with no burden on me to perform my duties. I actually  longed for another Covid-19 like lock down.

While pursuing my career, I once resided in China for over half a year in 1997, I witnessed the death of Deng Xiao Ping and the hand over ceremony of Hong Kong on TV. I also experienced the propaganda machine first hand.

On one hand, China longed for foreign investments that the country needed desperately. On the other, they loath the increasing foreign presence in the country. If you watch TV in China, you will definitely notice the daily bombardment of anti-foreigner TV programmes glorifying how China beat any foreign invasions, especially that of Japan which China still deem as their mortal enemy. 

In fact based on a study from China Uncensored The Ridiculous Japanese Devils of Chinese TV | China Uncensored demonstrated over a billion of Japanese killed in WWII.

The purpose of Chinese propaganda is not because they hate foreigners, they need the foreigners. What they want is to avoid the locals to engage positively with foreigners, telling people of the evil of foreign corruption instill fear in people of outside influence and only follows the direction set by the government itself.

Enough of detours that happens every time I work on articles involving China. Let's go back to the main point of this article.

If you go through the glorious history of China,  you will find one common pattern. While the emperors are deemed the  sons of heaven, there is never a short of threat to overthrow and kill them. They constantly suspect people around them and strike down on anyone who even voice objection to their decision. 

The outcome is having people who not only understand but to embrace this mindset to their advantage. They constantly praise their emperors, gaining deep trust and power, thereby becoming the person " below one person but above others". Fame and riches follows.

Yes, nepotism and corruption are the only cultural inheritance of Chinese culture. It is infused into every aspect of China, be it  politics, businesses and families. We constantly see the working of inner circles to expel people of different views to ensure the continuation of the power that they gain.

This is also the reason I see why China ALWAYS go into a cyclical phase of dynasty change. Borrowing from a Buddhist philosophy: human consist of birth, age, sickness and death, matters consist of form, existence, deterioration and disintegration. 

Communist China is to me coming to a complete cycle. Closing down of manufacturing, property crisis, creeping unemployment and lately with banks refusing people of cash withdrawal, the golden era to me seems to be coming to an end.

At this point, I must say that my view point when it comes to China is personal, bias and with prejudice, therefore if any reader going through this work of mine might want to take it with a pinch of salt.

Enough of my rant on China, let's move on to charting. 

In my last entry on HKD, I mentioned that if HKD is without its peg, it should be heading lower against USD. I have been using the weekly chart for my read at the time, which give me a sense of its major direction. Of course the peg will continue to hold it back.

However, how is the Hong Kong central bank doing with its peg right now?

Fig 1. HKD Hourly Chart

Instead of the weekly chart, I opened up the hourly chart that provides detail into the progress of HKD. Never have I seen such a long series of hammers testing the limits of HKD7.8500. Earlier on I wondered what it meant by forex reserve of USD to maintain a stable exchange rate HKD. 

Then I recall similar pattern seen on penny stocks years ago when I witnessed block buy and sell to maintain the counter to remain within a narrow zone. So what the Hong Kong central bank do is not only having sufficient USD forex reserve, but to use this reserve to create a block buy of HKD at price of HKD7.85 to USD1.00.

Life must be tough for the Hong Kong Central Bank right now as the selling pressure on HKD is so strong right now. It is not because of some global funds trying to break the wall, it is a market dumping of HKD, meaning an exodus of investments.

While the the price of HKD7.85 remain intact, cracks is observed at some points when HKD reach a lower level of HKD7.802 and HKD7.803.

Let's move on to China. I mentioned the tight control of China indices in the past and it may not worth looking into. I have decided to take a peek into Shanghai Composite Index (SSEC).

Fig 2. SSC Weekly Chart

My last entry with SSEC was in January 2016 "Is this the end of the China miracle?". I mentioned of the potential of China heading lower with support at between 1,600 to 1,700.  

It went into a low of 2,638 before it congested, eventually descended further to a further low of 2,440 before it gradually climbed back to a high of 3,731in February 2021. 

Strictly from the pattern point of view, I continue to see a 3-wave movement for SSEC since Oct 2008.  and ever since January 2016, SSEC again on a side trend before the start of its descend by 12th December 2021.

For the moment, I am not seeing a bottom formation, but a long pause on SSEC. Translating to economical term, China has has been stagnant since 2016.

Is it going on its way to complete its move now?

Fig 3. SSEC Weekly Chart Zoomed in

I am limiting the time frame of the chart to between 2016 to 2022 to study the more recent development. As a whole, it looks less of a reversal and more of a possible continuation pattern. 

SSEC conforms more to the zig zag behavior. Using this as the basis for measurement. The next support level is 2,038 with worse case of 993.  

On a shorter term, using the more recent peak, on 12th Dec 2022, I can see support at 2,901 follows by 2,579.

However, whether SSSEC will reach the ridiculous level of 993 really depends on its reaction to the neck line at 2,440. At this point, it is possible that SSEC will rebound but not reverse, creating the right shoulder before commenting descend. If this is the case, the damage is less with support at between 1,584 and 1,731.