Hong Kong Stock Rally May Have Gone Too Far, Indicator Shows

(Bloomberg) -- The stellar rally in Hong Kong stocks may be overdone, according to one technical indicator.

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The 14-day relative strength index for the Hang Seng gauge has stayed above 70 — a level which indicates the measure is in overbought territory — for most of this month. The benchmark last breached the milestone in January 2023, after which it fell 16%.

The Hang Seng index has rebounded from a January low thanks to a combination of policy support, cheap valuations and foreign inflows. A flurry of Wall Street brokerages have turned bullish on the Chinese market, with Goldman Sachs Group Inc. and Morgan Stanley raising their targets on stock indexes.

Still, global funds remain wary, saying recent gains have mostly reflected a rotational play on cheap valuations and corporate earnings. The Hang Seng index fell as much as 2.3% on Tuesday as traders took profit.

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