Weekly Edge: Stocks Surge On Withdrawal Of Hong Kong Extradition Bill

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Includes: BAPR, BAUG, BIBL, BJUN, CHGX, CRF, DDM, DIA, DMRL, DOG, DUSA, DXD, EDOW, EEH, EPS, EQL, EQWL, ESGL, FEX, FWDD, GSEW, HUSV, IVV, IWL, IWM, JHML, JKD, OMFS, OTPIX, PAUG, PMOM, PPLC, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RVRS, RWL, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SFY, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TRND, TWM, TZA, UAUG, UDOW, UDPIX, UPRO, URTY, USA, USMC, UWM, VFINX, VOO, VTWO, VV, ZF
by: Invest With An Edge
Summary

Stocks worldwide surged on the announcement by Carrie Lam, Hong Kong's chief executive, that the government would withdraw the extradition bill that has recently sparked protests in the city.

The Hang Seng Index rose nearly 4%, the best single-day gain it has had since last November, according to The Wall Street Journal.

The U.S. SPX and London's FTSE gained around 1% in response to the news on Wednesday.

However, investors may have become too confident too quickly.

By Ansh Chaudhary

Carrie Lam, Hong Kong's chief executive, announced Wednesday that the government would withdraw the extradition bill that has recently sparked protests in the city. The bill would have allowed suspects to be extradited to mainland China for trial.

As the protests near the three-month mark, Beijing seems to have softened its hardline stance on the matter. China's leader, Xi Jinping, "called on rising party officials to show resolve for a long struggle but suggested that the leadership could adjust its tactics to achieve its aims," reports The New York Times.

The withdrawal of the bill was necessary to restore business confidence and Hong Kong's international reputation. However, many believe that the gesture comes too late. Lam claims the withdrawal is meant to open dialogue with the citizens of Hong Kong, but demonstrators are skeptical. Several posts on a popular online forum for protestors urged demonstrators not to compromise until all of their demands are met, reports The New York Times. These demands include an investigation into police response to protests, amnesty for the people arrested, and direct elections for all lawmakers and the chief executive.

Stocks worldwide surged on the announcement. The Hang Seng Index rose nearly 4%, the best single-day gain it has had since last November, according to The Wall Street Journal. The U.S. SPX and London's FTSE gained around 1% in response to the news on Wednesday.

However, investors may have become too confident too quickly. "A survey of private businesses published Wednesday suggested that the beginnings of a serious recession were underway in August. The IHS Markit Hong Kong PMI survey came in at 40.8, far below the neutral 50 level. The result is consistent with a roughly 4% to 4.5% contraction in gross domestic product. Purchasing activity was at its lowest level in the 21-year history of the series," reports the Journal. Yet, investors quickly poured money into equities Wednesday, even though Lam's withdrawal does not guarantee a resolution to the crisis. Investors will be watching closely to see how demonstrators react to Lam's and Xi's latest move.

Sectors: The average momentum score for the Sector Benchmark ETFs increased from -7.55 to 0.36. Momentum increased for all 11 sectors last week. Despite Energy's 14-point increase in momentum score (the largest increase for the week), it remained the laggard. An 8-point increase in momentum score allowed Utilities to remain in first place.

Factors: Among the Factor Benchmark ETFs, the average factor score increased from -9.83 to -2.50. Momentum increased in all 12 factors last week. Despite an 11-point gain in momentum score (the largest increase for the week), Value remained in 11th place. Low Volatility remained in the top position after a 5-point increase in momentum score.

Global: The average Global Benchmark ETF momentum score increased from -19.09 to -10.91 for the week. Momentum in the global sector increased in all 11 regions last week. Latin America gained 16 points in momentum score but remained the laggard. USA overtook Japan for the top spot after a 7-point increase in momentum score.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.