Previously, the Hang Seng Index had gone through a correction upon rising above the 28,000-points mark.

But on Wednesday (30 August), it broke above 28,000 points again, and that seems to be a firm support level finally. The next target would be the high point of the 2015 rally.

The likely situation is that quick corrections will take place once the Hang Seng Index nears its 2015 high, but I believe that the correction is unlikely to last too long.

Recently, the Hang Seng Index adjusted from 27,800 points to around 26,800 points, and I believe that has already eliminated a number of investors who lacked confidence in the market.

On the other hand, the current stock market is full of speculative day traders and short term traders.

Once these people see a change of trend in the greater market, they would certainly sell their stocks without further hesitation, thus creating a phenomenon where the stock market corrects immediately right after it has hit a new high.

Chinese banks performing well

I have pointed out previously that even though the Hang Seng Index has reached a new high, the growth was no longer led by the big three players (Tencent Holdings Ltd, HSBC Holdings PLC, and AIA Group Ltd).

New sector stocks are subject to speculation, and the Chinese banking sector is currently leading the market till this date.

Many Chinese banks had announced their results on 30 August. All did well, but among which, Bank of China Hong Kong (Holdings) Ltd (2388.HK) showed the best performance.

Having said that, the share price of these bank stocks had already been pushed up by speculation even before the announcement of results. Therefore, I would not be surprised if their share prices fall today instead of rising up more.

Nevertheless, the good news is good news (translator’s note: at least it means that the banks are strong and doing well). If short-term speculators decide to sell upon the good news, which results in a fall of share price, one can consider buying.

Another driving force of the Hang Seng Index

Recently, there is a rumour in the market that Chinese-funded financial enterprises are selling the stocks of the companies that were trapped/tied up in trying to bail out the market post-2015 rally.

While I’m not sure whether this news is true or false, I think it’s good news either way. It shows that China A shares have risen to a point where companies that give bailouts to forcefully prop up the market will be able to exit without incurring a loss.

These companies that give bailouts are all state-owned enterprises, which hold sufficient funds. Thus, they are able to hold their ground and are not forced to sell and cut loss when stock prices fall after the bailout.

If they were able to sell their stocks now, it shows that the cost of the bailout was equivalent to the 3300-3400 points level on the Shanghai Composite Index (SHCOMP).

Thus, when the index broke above the 3300 points level and moved towards 3400 points, the companies that gave bailouts are no longer trapped, and may even register a turnaround.

The profit statement will be included in the end-of-year financial results summary, and that means more good news in the results announcements next year. This is another reason that recently drove up the Hang Seng Index.

This article was translated from Chinese to English by Chen Xushuang. Click here to read the original article.