Hang Seng Index is Unraveling: Buy the Dip or Sell the Rip?

Summary:
• The Hang Seng index has had a tough performance in 2022 as it has underperformed its global peers. It has crashed by more than 24% this year

The Hang Seng index has had a tough performance in 2022 as it has underperformed its global peers. It has crashed by more than 24% this year and is hovering at the lowest level since 2011. The index has fallen by almost 50% from its highest level in 2018.

Why is the HSI crashing?

The Hang Seng is the blue-chip index for companies listed at the Hong Kong Stock Exchange. Its biggest constituents are companies like China Mobile, Meituan, Alibaba, Tencent, and Jd.com among others. There are several reasons why the index has crashed in the past few years.

First, the protests that happened in 2019 led to a loss of confidence among global investors. The situation escalated when the Chinese government implemented National Security Laws in the city. While the city is much safe now, many investors believe that it lost its allure among foreigners because of how the laws are implemented.

Second, tensions between China and western countries have made it extremely difficult for investors to allocate funds to the exchange. Many analysts have started to price in a situation where China invades Taiwan and the uproar that will come out.

Third, Beijing’s crackdown on tech companies like Alibaba, Tencent, and Meituan has led to a sharp deterioration of shares. Most importantly, the performance of the housing market in China is a major issue. Real estate companies like Longfor Properties, Wharf Real Estate, and China Resources Land have all seen their shares crash.

Meanwhile, the Chinese economy is unraveling as the property sector crashes. This is an important sector since it accounts for about a third of the Chinese economy.

Hang Seng index forecast

The daily chart shows that the Hang Seng index has been in a steep downward trend in the past few years. This decline saw the stock crash to a low of H$16,954, which was the lowest level since 2011, It has now retested the important level at $18,260, which was the lowest level on March 15. A break and retest is usually a sign of continuation.

Therefore, there is a likelihood that the HSI index will keep falling as sellers target the key support level at $17,000. A move above the key resistance at $18,300 will invalidate the bearish view.