Hang Seng Tech Index slumps into a bear market as Nio, Xpeng, Li Auto slump

The Hang Seng Tech Index has crashed into a bear market as concerns about the industry continued. It plunged to H$5,390, its lowest level since August 4 and 20% below its highest point this year. This article explains the reasons behind the drop.

EV stocks like Nio, Li Auto, XPeng, and Leapmotor lead the sell-off

The Hang Seng Index has pulled back in the past few weeks, driven by the weak performance of electric vehicle companies. Data shows that the Nio stock price has plunged by 20.5% in the last 30 days, making it its top laggard.

XPeng stock as dived by 20.3%, while Li Auto and Leapmotor have slumped by over 12%. BYD, one of the biggest automakers in the world, has also slumped by over 7% in this period. 

Chinese EV stocks have plunged because of the ongoing competition and price war that is affecting their margins. There are also concerns about the growth trajectory as companies boost their production. 

Nio, in particular, is sending concerns because of itst lack of profitability and the dilution. The company’s recent report showed that it delivered 36,275 vehicles in November, a 76.3% increase. However, the company also raised $1.16 billion by selling shares.

XPeng, on the other hand, delivered 116,007 vehicles in the third quarter, a 150% annual increase. Its total revenue rose by 101% to $2.86 billion, while its gross margin rose to 20.1%. 

Li Auto has become one of the weakest companies in China’s EV industry. Its vehicle sales dipped by 37.4% in the third quarter, while the vehicle margin dropped to 15.5% from the previous 20.9%. The company made a big $64 million loss, while its free cash flow dropped to minus $1.3 billion. 

Other top laggards in the index

Meanwhile, Xiaomi stock price has dropped by 4.5% in the last 30 days and 35% from its highest point this year. Its crash has erased billions of dollars in value. 

Xiaomi has dropped because of its exposure in the EV industry and the ongoing jitters in AI. 

Other top companies that have slumped in the last month are firms like Hua Hong Semiconductor, SenseTime, Kingsoft, SMIC, Kingdee International Software, Bilibili, and Lenovo. 

Some of these stocks have slumped because of concerns that the AI bubble is deflating as top companies like Oracle and Broadcom struggle.

Hang Seng Tech Index technical analysis 

Hang Seng Tech Index chart | Source: TradingView

The daily chart shows that the Hang Seng Tech Index has pulled back from the year-to-date high of $6,710 in October to the current H$5,400. It is hovering near the lowest level since August 5. 

The index has moved below the important support at H$6,193, its highest point in March this year. Also, the 50-day and 100-day Exponential Moving Averages (EMA) are about to cross each other.

It has moved below the ascending trendline, which connects the lowest swings since July this year. Therefore, the most likely scenario is where it continues falling as sellers target the support at H$5,000. A move above the resistance point at H$5,690 will invalidate the bearish view and point to more upside.