What’s going on with the vulnerable Hang Seng index?

The Hang Seng index continued to underperform its global peers as demand for Hong Kong and Chinese stocks eased. The index plunged by almost 2% on Tuesday and reached a low of $15,904, the lowest point since October 2022. It has fallen in the past three straight weeks, making it one of the top underperforming index globally.

The Hang Seng index is in a steep sell-off as concerns about the Chinese economy continue. This view is confirmed by the fact that the other mainland China indices like China A50 and Shanghai Composite have been in a downward trend recently.

Economic data published last week showed that China remained in a deflation period where prices are falling. While cheaper goods and services are good, they can hurt an economy as people postpone their purchases.

There are also additional signs that China is not doing well as iron ore prices sink. Data by Business Insider shows that the price of iron ore has plunged to $137.22 from the year-to-date high of $145. Iron ore, which is used to manufacture steel, is often seen as a barometer for the Chinese economy.

Further, there are signs that tensions between China and the US will escalate after Taiwan voted for a pro-independence candidate. This means that the odds of China’s invasion of Taiwan in the next few years have increased.

Meanwhile, many foreigners have dumped their Chinese holdings in the past few years. Data by the Financial Times showed that foreigners dumped over $25 billion worth of Chinese stocks they invested in 2023. Net selling of Chinese shares has jumped to a 9-year high.

The Hang Seng index performance contrasts what is happening elsewhere. In India, as I wrote last week, the BSE Sensex and Nifty 50 have just hit their all-time highs. European indices like FTSE MIB and DAX are also sitting near their highest points on record.

The Hang Seng index sell-off has been broad-based this year as most stocks have plunged. The worst performers are companies like Longfor Properties, Jd Health, Sunny Optical, and Li Auto. Other companies like Country Garden, Li Ning, and Alibaba have been in the red, falling by over 20% this year alone.

Hang Seng chart by TradingView

Looking at the daily chart, we see that the Hang Seng index has been in a strong downward trend. On Tuesday, the index crossed the key support at $15,955, the lowest swing on December 11th. It remains below the 50-day and 100-day Exponential Moving Averages (EMA). It has also crashed below the descending trendline shown in black.

The Relative Vigor Index (RVI) points downwards. Therefore, the outlook for the Hang Seng index is bearish, with the next point to watch being at $15,000. The stop-loss of this trade will be at $16,500.

The post What’s going on with the vulnerable Hang Seng index? appeared first on Invezz