Here in the United States, economists, institutional investors, and individual investors alike are looking at the market and asking themselves the question, “when is the bubble going to pop?”. Over the past 8 years, the market has seen continual growth vastly increasing stock and mutual fund values practically across the board. Experts and economists alike have attempted to answer the question, but no one can know for sure exactly when or if the downturn will begin. In Hong Kong, the downtown has already begun.

Hong Kong’s Hang Sang Index hit a value of more than 33,000 in January of this year.  Now, the index sits at just about 27,000, representing an almost 20% decline in the market this year alone. Analyst see the downtrend continuing in the coming months, placing a downside target value near 25,200.

From the outside looking in, it may seem that the Hang Sang index has what’s known as a “head and shoulders” pattern. By definition, a head and shoulders pattern is seen on a technical analysis chart in which a market trend is in the process of reversing to a bullish or bearish trend. The pattern is defined by three relative spikes or downturns in the market.  The first and third spike or downfall is significant but not as large as the middle spike or downfall. The Hang Sang Index does not support the head and shoulders pattern as the so-called right shoulder of the pattern has been created by just two days of activities. In addition, the reversal from bearish to bullish or vice versa is too small to be considered the left shoulder.

In the past week, much of the decline in Hang Sang Index can be attributed to the uncertainty created by the trade war. According to Hao Hong, a managing director and head of research at Bank of Communications International, the market is “finding it difficult” to price in the trade war and its developments. For instance, on September 7th when the comments about US tariffs to the tune of $200 billion of Chinese import hit the public stage, they have yet to really come to fruition as the tariffs are not in place.  Hong went on to explain that, “It would be a pretty bad scenario” if all proposed tariffs go into effect. In his mind, “stocks can go substantially lower from here.” “Beyond the tariffs, the services and materials sector took a hit this past week. Both sectors say a 2.4 percent decline in the past week.

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