Here’s why the Hang Seng Index is missing the global stock market bull run

Hong Kong’s Hang Seng Index has become a major laggard in the global equities market as top constituent companies plunge. The index was trading at H$25,600 today, June 3, down by nearly 9% from its highest point this year.

In contrast, its top peers have surged to a record high. In Taiwan, the TWSE index has surged to a record high. Similarly, in South Korea, the Kospi Indexhas jumped by over 200%, and Goldman Sachs believes that it will be ultimately surge to 12,000. 

The same bull run is happening in the United States, where the top blue-chip indices like the Nasdaq 100 and S&P 500 have continued to hit record highs every day.

Top Hang Seng Index constituents have lagged behind

The ongoing weakness in the Hang Seng Index is happening because of the ongoing performance of some of its top companies. Trip.com, China’s equivalent to Expedia and Booking Holdings, has plunged by over 30% this year, making it the worst-performing company in the index. It has dropped amid an ongoing investigation by Chinese regulations on its market dominance.

Large tech names in the Hang Seng Index have continued to weaken. For example, Xiaomi, China’s equivalent to Apple, has slumped by 27% this year. This crash contrasts with its top peers like Samsung Electronics and Apple, which have jumped to record highs.

Xiaomi is facing a major challenge in that memory and chip prices have continued rising this year. As a result, the company has suffered margin compression, a trend that will continue in the foreseeable future. 

Tencent Holdings, the biggest Chinese company by valuation, has retreated by 23% this year. Its recent results came short of expectations despite the booming gaming and AI demand. Its revenue was about 196.5 billion yuan, down from the expected 199 billion yuan. 

There are signs that its gaming segment is slowing as its revenue grew by 9% compared to 24% in the same period last year. 

Meituan, a large Chinese food and grocery delivery company, has slumped by 22.2% this year and by 40% in the last 12 months. This retreat is mostly because of the elevated competition in China, mostly from companies like JD and Alibaba. 

Alibaba, China’s equivalent to Amazon, has slumped by 11% this year, as its profit has slumped. The most recent results revealed that its profit plunged by 84% as it boosted its AI investments. 

Hong Kong top gainers are not enough to offset the laggards

Hang Seng’s main challenge is that the top laggards this year are also some of its biggest constituents. The only exception to this is Lenovo Group, whose stock has jumped by 174% this year because of the soaring PC and server demand.

The other top gainers in the Hang Seng Index are relatively smaller names. This includes companies by Contemporary Amperex, Techtronic Industries, CK Hutchison, China Overseas Land, and China Resources Land. 

Hang Seng technical analysis

Hang Seng Index chart | Source: TradingView

The daily chart shows that the Hang Seng Index has remained inside a narrow range this year. It is stuck inside the key support and resistance levels at 25,087 and 27,197 in the past few months.

The index is therefore consolidating along the 50-day and 100-day Exponential Moving Averages (EMA). At this stage, the outlook is relatively neutral with a bullish bias. Chances are that it will remain inside this range for the foreseeable future. A move above the key resistance at 27,197 will point to more gains over time.

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