By Sean Geary
Multiple Asian indices hit 18-month highs in Monday trading, including Hong Kong's Hang Seng exchange (NYSEARCA:EWH), which peaked today at 23,944 before retreating below 23,800. Both the Hong Kong index and the Shanghai Composite (NYSEARCA:FXI) hit fresh highs on Monday, with the latter hitting its highest levels since late 2011. Both exchanges were buoyed by positive data from the United States and the Mainland itself.
The U.S. jobs report released Friday morning indicated solid employment growth in the United States in addition to upward revisions from previous months. The news resulted in greater risk-on trades in New York.
According to Bloomberg, China's service industry sector grew at its fastest pace since August as a result of increased activity in retail and construction. China's non-manufacturing PMI came in at 56.2, substantially above the 50 level that demarcates growth from contraction. The encouraging data from the service sector comes on the heels of last week's manufacturing numbers indicating this beleaguered sector of the Chinese economy is on the mend.
The continued positive news from the Chinese economy has catalyzed fund flows into equities. Significant amounts of capital had been removed from Chinese equity markets in the aftermath of the financial crisis; it would appear as if some of this money is finding its way back into stocks.
On the back of solid economic data from China and positive earnings from companies with exposure to the Chinese consumer, Chinese equities are poised to continue their march higher. However, after Hong Kong's quick retreat from new highs today, these exchanges could take a breather before continuing upward.
Traders should watch these pullbacks carefully; today's reversal could signal a brief pause. However, as long as Hong Kong equities continue to make higher highs and higher lows, traders should try to continue to ride the trend to the upside.