Hang Seng Index Futures Retreats After Two-Day Rally, Uptrend Still Intact

Hang Seng Index Futures (HSIF) recorded a steep decline on Wednesday, dropping 384 points to settle at 25,104 as investors engaged in profit-taking, according to RHB Investment Bank Bhd (RHB Research).

The session opened at 25,491 points and briefly reached a high of 25,633 before reversing to the day’s low of 25,074 points.

RHB Research reported that the market closed with a bearish candlestick, reflecting renewed selling pressure. During evening trade, the HSIF extended its losses by 185 points, last seen trading at 24,919, confirming that the index has entered a correction phase.

Technical Signals Point to Correction

Analysts highlighted that the Relative Strength Index (RSI) is trending lower, indicating weakening bullish momentum.

The index is expected to test its 20-day simple moving average (SMA). Should it fall below this level, the correction could extend further toward the 50-day SMA.

Despite this retracement, both moving averages continue to slope upward, suggesting that the overall bullish trend remains intact.

RHB Research recommended traders maintain long positions initiated at 21,416 points on 14 April, while keeping a stop-loss at 23,800 points.

Support levels were identified at 23,800 and 23,000 points, whereas resistance was placed at 26,000 and 27,000 points.

Mainland Stocks Post Strong Monthly Gains

Meanwhile, mainland Chinese equities closed higher on Friday, capping their strongest monthly gain since September 2024. This rally has been driven largely by abundant liquidity, despite warnings from technology firms regarding recent price surges.

In Hong Kong, the benchmark Hang Seng Index added 78 points, or 0.32 percent, finishing at 25,077. Although the index fell 1 percent for the week, it still advanced 0.9 percent in August. Tech majors posted a modest rise of 0.5 percent on Friday.

Across mainland China, the Shanghai Composite Index rose 0.37 percent to close at 3,857, while the Shenzhen Component Index gained 0.99 percent, ending at 12,696.

The combined turnover of both indexes stood at 2.8 trillion yuan, slightly below Thursday’s 2.97 trillion yuan.

Sector Performance: Gains and Losses

Certain sectors posted strong performances, with shares of lithium battery manufacturers leading the gains. Liquor and financial stocks also recorded notable increases. In contrast, chip stocks experienced significant losses.

The ChiNext Index, which tracks China’s Nasdaq-style growth enterprises, climbed 2.23 percent to close at 2,890.

China’s recent market rally has been supported by strong liquidity conditions in a low-yield environment. Additionally, government measures to limit aggressive price competition have provided further momentum, with the aim of boosting inflation.

Record Turnover and Policy Measures

The daily turnover of onshore Chinese equities hovered around three trillion yuan this week, with the total for August expected to hit a record high.

China’s top economic planner announced plans to collaborate with other government departments to investigate and penalize practices such as below-cost dumping, false propaganda, and “disorderly competition” in specific industries.

Spokeswoman Li Chao emphasized the importance of regulatory actions to maintain market stability.

Tech Stocks Face Volatility

Despite broader market strength, technology shares faced sharp volatility. Cambricon Technologies, a leading Chinese chip firm, issued a risk warning to investors in a stock exchange filing on Thursday.

The company cited a significant surge in its share prices since late July. On Friday, its shares fell 6 percent after more than doubling earlier in the month.

Trading in Dosilicon, another semiconductor manufacturer, was suspended on Friday following reports of abnormal stock price volatility since July 29.

Meanwhile, the tech-heavy STAR50 index slid 1.7 percent after gaining nearly 30 percent in the same month. Investors appeared to rotate into defensive stocks, with consumer staples rising 2 percent to lead onshore advances.

Outlook

The recent pullback in the HSIF signals the beginning of a correction, but analysts stress that the broader bullish outlook remains unchanged.

While technology stocks continue to face volatility, mainland equities have shown resilience, supported by strong liquidity and government policy measures.

With turnover levels at record highs, market participants are expected to keep a close watch on sector-specific developments and regulatory actions in the coming weeks.