Here’s why the Hang Seng index is lagging its global peers

The Hang Seng index has continued to lag behind other global indices this year. It has risen by less than 6% in 2024 and is stuck 8.7% below its highest point this year and is about 43% below its highest point in February 2021. 

In contrast, most global indices like the Dow Jones, Nasdaq 100, and S&P 500 have all jumped by double digits this year and are sitting at their all-time highs. Its Asian peers like India’s Nifty 50 and South Korea’s KOSPI have also soared.

Foreign outflows from China

The first major reason why the Hang Seng has lagged behind its global peers is that investors have continued to dump Chinese stocks. 

Recent data shows that investors dumped over $238 million from the popular KraneShares CSI China Internet Fund (KWEB). Most of these funds have likely moved to other countries that are doing well like the United States, India, and Europe.

A likely reason for this is that there are concerns about relations between the United States and China. These relations have been tense under Joe Biden. If Trump wins, there are odds that the situation will become worse.

Donald Trump’s economic policy is on implementing large tariffs against China in a bid to lower the country’s deficit. There is no evidence that Trump’s last tariffs worked to reduce the US deficit since it has remained at an elevated level.

Trump’s theory is that implementing tariffs will incentivise manufacturers to move to the United States. That will not happen since the US has some of the biggest operational costs, especially wages. 

A new trade war will not be good for Hang Seng index companies, as we saw when the last one happened. The index fell from a high of H$33,472 in 2018 to H$21,000 in 2020.

China is not doing well

The Hang Seng index has also underperformed because the Chinese economy is not doing well. Economic data released on Saturday showed that the country’s manufacturing PMI dropped from 49.4 in July to 49.1 in August. A PMI figure of below 50 is usually a sign that a sector is in a contraction mode.

There are other signs that the manufacturing sector is lagging. For example, the prices of key industrial commodities like copper and iron ore has continued falling in the past few months. In most cases, these prices rise when the economy is doing well, and vice versa.

Another report released recently showed that China’s GDP grew by 4.7% last quarter, missing the estimated 5%.

Therefore, investors have largely exited China because the country is no longer growing as it did in the past.

Most importantly, investors have soured on Hong Kong now that Beijing has gotten more involved in the city. The Hang Seng index has dropped by over 25% since the passage of the National Security Law in 2020.

Property stocks drag the Hang Seng

Additionally, the crisis in the property market is taking longer to be fixed than expected. While China has pledged over $70 billion to support the industry, data shows that the support is not coming as fast as expected.

As a result, property stocks have been some of the worst performers in the Hang Seng index. Longfor Properties stock has dropped by 30% this year and by over 75% in the last three years. 

China Resources Land has dropped by over 20% while Hang Lung and New World have slumped by over 40% this year.

Casino stocks have also underperformed the market this year. Sands China shares have dropped by over 37% while Galaxy Entertainment is down by over 37%.

Some if the top performers in the Hang Seng index are companies like China Resources Power, Zijin Mining Group, CNOOC, CK Infrastructure, China Hongqiao, and Meituan.

Hang Seng index analysis

The weekly chart shows that the Hang Seng index has underperformed the market in the past few years. It has dropped from a high of H$33,472 in 2018 to H$17,990. 

The stock has dropped below the 23.6% Fibonacci Retracement point and the 50-week and 100-week Exponential Moving Averages (EMA).

It has also moved below the descending trendline that connects the highest swing since January last year. 

Therefore, the Hang Seng index will likely resume falling as sellers target the next key support level at H$16,420.