The Hang Seng index is the worst-performing major index this year. It has crashed by more than 12% while majors like the Dow Jones and S&P 500 have risen by more than 15%. It is also trading at the lowest level since October last year and is about 23% below the highest level this year.
Why Hang Seng is lagging
There are three main reasons why the Hang Seng index is struggling this year. First, China has intensified its pressure on the technology sector. For example, it has asked companies like Alibaba to open up their marketplaces and even share data among competitors.
It even fined Alibaba more than $2.8 billion for uncompetitive practices. It has also ordered gaming companies like Tencent to limit the number of hours that young people spend playing games.
Second, China has also started a major crackdown on the gambling industry. Chinese government officials vowed to tighten restrictions on casino operators. These regulations will include appointing a state official to supervise companies in the sector.
Third, the housing market remains uncertain after the collapse of Evergrande, the second-biggest real estate company in the country. The decline has affected other property developers that are currently struggling to raise capital. At the same time, rating agencies have downgraded Fantasia Holdings and Sinic and warned that the companies may struggle paying their instalments.
Worst performers in the index
Therefore, a quick look at the performance of Hong Kong shares shows that companies in the three sectors above are the worst performers this year.
Sands China, a leading Macau casino operator, is the worst performer in the Hang Seng as the shares have tanked by 55%. They have dropped by 40% in the past month.
It is followed by Alibaba, Haidilao International, Ping An Insurance, Xiaomi, Galaxy Entertainment, and Country Garden. Other worse performers are China Life Insurance, Hengan International, and Longfor Properties.
On the other hand, the best Hang Seng stocks this year are Li Ning Co, Petrochina, Citic Pacific, CNOOC, and China Merchants Bank.
Hang Seng forecast
The daily chart shows that the Hang Seng index has been under intense pressure lately. The index has crashed to the lowest level since October last year. Also, it has dropped below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is at 40.
Therefore, the index will likely continue dropping as investors target the next key support level at $22,500. On the flip side, a move above the resistance at $25,000 will invalidate this view.