Hang Seng index enters correction as Meituan, Baidu stocks diverge

Global stocks have pulled back as investors reset their expectations about what the Federal Reserve will do in the coming months. In Hong Kong, the blue-chip Hang Seng (HSI) index crashed to a low of H$20,000, the lowest point since January 4. It has plunged by over 12% from its highest point this year, meaning that it has moved to a correction area.

Tech stocks plunge

A look at the top Hang Seng constituents shows that technology firms have led the crash this year. Meituan, the giant food delivery company, has seen its stock plunge by 21%, making it the worst component this year. JD.com, the leading Chinese e-commerce company, has crashed by 17% while Alibaba has plunged by 15%. BABA stock has pulled back even after the company published strong results last week.

The only tech-focused companies in the green this year are Lenovo, Baidu, NetEase, Xiaomi, and Tencent, which have risen by over 5%. Globally, tech companies have slumped this year, with the tech-heavy Nasdaq 100 erasing all gains made this year. 

HSBC share price is the second-best performing Hang Seng constituent having risen by 20% this year. The company published strong quarterly results and boosted its payouts to investors. It is also benefiting from the rising interest rates and low default rates among customers.

The main reason for the ongoing Hang Seng index crash is that investors have started taking profits after the index bounced back from its last year low. This issue has been complicated by the fact that Hong Kong’s economy is recovering at a relatively slower pace than expected. 

Further, in the United States, there are worries that the Federal Reserve will continue with its hawkish tone in the coming months. Data published on Friday showed that its favorite inflation gauge remained red-hot in January, as we wrote here.

Hang Seng index analysis

On the 1D chart, we see that the Hang Seng index has been in a strong bearish trend in the past few weeks. This decline started when the index moved to a high of $22,466, which was an important resistance point since it was the highest point in June last year. The index has crashed below the 25-day and 50-day volume-weighted moving averages (VWMA). Oscillators like the RSI have also drifted downwards. 

Therefore, the Hang Seng will likely continue falling as sellers target the next support point at $19,165 (May 10 low). The stop-loss of this trade will be at H$20,600.