Here’s why the Hang Seng Index is trailing its global rivals this year

Hong Kong’s Hang Seng Index is underperforming its global peers this year as most Chinese technology giants struggle. It has dropped by over 8.4% from its highest point this year, while most indices like the Hang Seng, S&P 500, and the Dow Jones are hovering at their record highs. 

Hang Seng Index lags as top technology companies slip

Most Chinese technology companies are underperforming the market this year, which is why the Hang Seng Index is nearing a technology correction.

Trip.com, the leading competitor to companies like Expedia and Booking, has dropped by 35% this year and is the top laggard in the Hang Seng Index. It slipped as Chinese regulators started an investigation on its anti-competitive behaviors in the country. 

Kuaishou Technology, which runs popular social media apps, has tumbled by 28% this year and 33% in the last three months. JD Health, Tencent, and Xiaomi are the other top laggards in the index this year.

Tencent, the biggest Chinese company, recently published weak financial results, even as it boosted its capital spending plans. Its revenue came in at 196.5 billion yuan, less than the 199 billion that analysts were expecting. Its gaming revenue remained under pressure as the industry’s slowdown continues.

BYD, a top electric vehicle company in China, has dropped by 22% this year as its sales momentum has faded. For example, its deliveries dropped by double digits in the last quarter.

Alibaba stock, which is dual-listed in the United States, dropped by 11% this year. In its recent results, the company said that its profit plunged in the first quarter, with the EBITDA falling by 84%.

These numbers mean that, while Chinese technology companies are spending aggressively on AI, their return on investmens remain muted.

At the same time, their AI companies differ substantially from those in Japan, South Korea, and the United States. In South Korea, the Kospi Index is being driven by Samsung and Sk Hynix, two of the top semiconductor manufacturers in the world. 

The US market is more diverse, with companies in the memory industry leading the charge. This includes firms like Seagate, Micron, Western Digital, and Sandisk. 

On the other hand, a diverge group of companies is leading the Hang Seng Index this year. Lenovo Group stock has jumped by 60% this year, as demand for PCs and servers remain high. The other top gainers are firms like Sun Hung Kai Properties, CK Hutchison, Contemporary Amperex, Techtronic Industries, and CK Asset.

Hang Seng Index technical analysis

HSI chart | Source: TradingView

The daily chart shows that the Hang Seng Index has plunged in the past few months, moving from a high of $28,072 in January this year to the current $25,690.

It has formed a head-and-shoulders pattern, a common bearish reversal sign in technical analysis. It is now hovering near this pattern’s neckline.

The index has moved below the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD indicators have continued falling.

Therefore, the stock will likely continue falling, potentially to the key support at $25,000. A move above the key resistance level at $26,500 will invalidate the bearish outlook.