Hang Seng Index just flashed a death cross as Kospi, Nikkei 225 surge: here’s why

The Hang Seng Index continued to deviate from its global peers today, June 22, and formed two major highly bearish patterns, pointing to further downside in the near term. 

The index, which tracks the top Chinese companies, dropped to 23,445 on Monday, its lowest level since June last year and 16% below its all-time high. In contrast, top global indices like South Korea’s Kospi, Japan’s Nikkei 225, and United States’ Nasdaq 100 surged to a record high amid the AI supercycle.

Hang Seng Index formed a death cross and a H&S pattern

The Hang Seng Index has formed numerous bearish patterns in the past few months. A key one is the head-and-shoulders pattern, which is a common bearish divergence sign in technical analysis. It has now slipped below the neckline of $25,158, confirming its performance.

The distance between the head and the neckline is about 2,858 points. Subtracting that amount from the neckline gives it a target of 22,300, which is still lower than the current 23,445.

At the same time, the index has just formed a death cross pattern as the 50-day and 200-day moving averages have crossed each other. This pattern often leads to more downside over time. 

The index also remains below the Ichimoku and the Supertrend indicators, a sign that bears remain in control for now. Also, the Average Directional Index (ADX) has continued rising, meaning that the downtrend is strengthening.

Hang Seng Index chart | Source: TradingView

China technology stocks are trailing in the AI supercycle

The ongoing Hang Seng Index crash is happening as top Chinese technology companies continue trailing their global peers in the artificial intelligence industry.

A closer look at the top gainers in the US, South Korea, and Japan shows that they are all big names in the AI industry. In South Korea, the gains in the Kospi are being driven by SK Hynix and Samsung. 

Similarly, in Japan, the top drivers of the Topix and Nikkei 225 Index are Softbank, Kioxia, Furukawa Electric, and Taiyo Yuden. Kioxia has jumped by over 850% this year and 5,147% in the last 12 months.

The same trend is happening in the US, where companies like Micron, Sandisk, and Western Digital are leading the pack. All these companies are benefiting from the AI industry as suppliers.

On the other hand, the top AI companies in the Hang Seng Index are mostly in the demand segment. This includes companies like Alibaba, Tencent, Xiaomi, and Kuaishou Technology.

These firms are struggling because of the rising cost of semiconductors and other items as they boost their AI spending. For example, Alibaba’s profits plunged by over 80% in the last quarter, while Xiaomi has suffered as memory prices have soared.

Lenovo, a company that makes servers and storage solutions, has become the best gainer in the Hang Seng Index as it jumped by 153% this year. 

The Hang Seng Index, on the other hand, has plunged as other key Chinese companies have slumped. A good example of this is in the EV industry, where constituents like BYD and Li Auto have slumped by 30% and 23%, respectively. This retreat is happening after China ended some of the subsidies to the industry.