Hang Seng Index (HSI) is used extensively in the Hong Kong stock market. As a supplementary background photo, the following is a snapshot picture of the Hong Kong Stock Exchange (stock code of HKEx: 388.hk) trading floor:
Our independent stock market expert team put estimated fair values of these industry weightings into the HSI formula and, by our calculations, Hang Seng Index (HSI) target should be 21960 in 2011.
Our calculated HSI target may a bit surprises you: it is just unlike big investment firms like Goldman Sachs, Morgan Stanley or JP Morgan Chase who did set target levels at over 26500. Our term 'target' does NOT represent the maximum possible value of HSI will reach in the year 2011. It is used to reflect a fair value (reasonable price) we trust HSI will be. We strongly believe our calculated target (fair value) should be a better indicator for average investors, as they may easily realize if the market value goes higher than our target then it is not a reasonable price level that they should take risk to buy.
Our HSI target is mainly based on the following facts:
(1) Net profit growth for a significant number of HK listed companies has started to decline from 2010 Q3 to 2011 Q1.
(2) It is our prediction that the Chinese economy growth rate will slow down in 2011, and Chinese central government will continue to implement the relatively tighter monetary policy.
(3) there has been a rising concern about policy risk especially for the property market in Hong Kong, and hence a -5% correction for local property-related stocks is expected in 2011. Read more about: Special Stamp Duty signals the End of High-land-price Policy in Hong Kong.
(4) Hong Kong Dollar (HKD) continues to recede recently due to outflow of capitals. This weakening process of HKD should also exert pressure to the local stock market in 2011. Read more about: HKD Weakens as Refuge for Capitals Fades.
According to our rating system, the current Hang Seng Index (HSI) level of 21695 (as of 17 Jun 2011) should be rated as "reasonable".
Based on technical analysis, Hang Seng Index (HSI) started to enter a new bullish stage on early November 2010 after roaring past the important barrier of 23828, which is the 61.8% (Fibonacci Golden Ratio) rebound level from the bottom 10676. (Remark: similarly the DOW has also passed over 11285, the 61.8% rebound level from the bottom 6440). Historically, no bear market can rebound more than 61.8% from the bottom and hence the 61.8% rebound level is used by technical analysts to confirm whether a bear market is over. However, this HSI bull market with peak level at 24989, which was driven by the extreme low interest rate and excess monetary liquidity, has last only for a few months. It is possibly the final rally before the end of this bull market, although we still need more data from technical analysis to conclude that the current HSI downward trend can affirm a new bear market is born.
After all, Mr China does not encourage any risky trading in stock market (especially margin trading), please read: our risk disclosure and disclaimer statement for extra details.
The 21960 is of course our initial release value of Hong Kong HSI (Hang Seng Index) target in 2011, we will continue to monitor the ever changing market conditions to upgrade/downgrade our HSI target later if the stock valuation of the index constituents may change.
UPDATE - our 2011 HSI target has already been updated, please read our newer article: Updated 2011 HSI and SSEC Index targets to understand the reason(s) for this update.
2011 Shanghai SSE Composite Index target
2011 China Trade Balance target
Setting our own targets