Hang Seng Index Falls for Third Consecutive Day, Breaks Below 18,000 as Tech Stocks Lead Decline, Market Sentiment Weakens

Hong Kong's Hang Seng Index fell for three consecutive trading days this week, breaching the 18,000-point mark, as market sentiment notably weakened. Tech stocks led the decline, with heavyweights like Tencent and Alibaba under pressure, prompting investors to adopt a cautious outlook. Analysts attribute the correction to a combination of external macroeconomic uncertainties and tight domestic liquidity conditions.

Hang Seng Index Falls for Three Days, Breaks Below 18,000

As of Wednesday's close, the Hang Seng Index recorded losses for three consecutive trading days, with a significant cumulative decline, breaking below the key 18,000-point integer level. This marks the first time since the start of the year that the index has lost this critical psychological support level in consecutive sessions. Trading activity declined, with daily turnover shrinking compared to previous sessions, indicating a strong wait-and-see sentiment among investors.

From a technical perspective, the 18,000-point level had been viewed as a short-term bull-bear divide. This level is both an integer mark and a convergence zone for multiple short-term moving averages. After breaking below this point, market attention has shifted to the next support level around 17,500. If that level fails to hold, the index could further test the 17,000-point integer level. However, some technical analysts believe that after the consecutive declines, the index has entered oversold territory, suggesting potential for a short-term technical rebound.

Tech Stocks Lead Decline, Tencent and Alibaba Under Pressure

The technology sector was the hardest hit in this downturn. The Hang Seng Tech Index fell more sharply than the Hang Seng Index, with several heavyweight stocks hitting new lows for the period. Tencent Holdings and Alibaba, as representatives of Hong Kong-listed tech stocks, both saw significant price corrections.

For Tencent, the market is divided on the growth prospects of its gaming business. Although the company has recently launched several new games, the market is taking a wait-and-see approach regarding their revenue performance. Additionally, its advertising business has seen a slowdown in growth due to macroeconomic headwinds. Alibaba faces intensifying competition in the e-commerce sector, with emerging platforms like Pinduoduo and Douyin E-commerce steadily eroding its market share. Meanwhile, the slowdown in its cloud computing business growth has also raised investor concerns.

Other tech stocks, such as Meituan, JD.com, and NetEase, also declined broadly. Meituan is affected by regulatory policy uncertainties in its food delivery business, while JD.com is under pressure due to a slower-than-expected consumption recovery. Overall, the valuation recovery process for tech stocks has stalled, and market expectations for their earnings growth have been revised downward.

Analysis of the Decline: Convergence of Internal and External Factors

This decline is not due to a single factor but results from the convergence of multiple internal and external factors.

Externally, expectations for a Federal Reserve rate cut have been delayed again. According to recent Fed statements, the pace of inflation decline has been slower than expected, and market expectations for the number of rate cuts this year have been reduced from three to one or two. The US dollar index has strengthened, increasing pressure on capital outflows from emerging markets. As an offshore market, Hong Kong is particularly sensitive to capital flows, and foreign capital outflows have directly dragged down the index.

Internally, the pace of China's economic recovery still needs strengthening. The recently released manufacturing PMI data, while remaining in expansion territory, showed a month-on-month decline, indicating that the foundation of the economic recovery is not yet solid. Risks in the real estate sector have not been fully resolved, with liquidity issues at some property developers continuing to fester, weighing on market confidence. Furthermore, the Hong Kong stock market has recently lacked new policy catalysts, with investors awaiting more positive signals.

On the liquidity front, net buying through Southbound Stock Connect has narrowed, while Northbound Stock Connect has seen sustained net outflows. Capital flow data from Stock Connect shows that mainland investors' interest in Hong Kong stocks has cooled, particularly in their allocation to tech stocks.

Subsequent Support Levels and Market Outlook

Looking ahead, whether the Hang Seng Index can stabilize below the 18,000-point level depends on several key factors.

First, whether tech stocks can stop falling is crucial. If heavyweights like Tencent and Alibaba continue to decline, the index will find it difficult to stabilize effectively. The market is focused on upcoming quarterly earnings reports; if results exceed expectations, they could boost sentiment in the sector. Second, changes in the external liquidity environment are critical. If the Fed signals more clearly about rate cuts and the US dollar weakens, Hong Kong stocks could see capital inflows.

From a valuation perspective, the current P/E ratio of the Hang Seng Index has fallen to historically low levels, and the P/B ratio is near book value. Some value investors believe that current levels offer medium to long-term allocation value. However, in the short term, market sentiment will take time to repair, and the index may consolidate and form a bottom within the 17,000-18,000 range.

Technically, the 17,500 level is the next important support, corresponding to the low point from the end of last year. If the index finds support at this level and rebounds on increased volume, a short-term bottom could be confirmed. Conversely, if it breaks below this level, it could further decline to the 17,000-point integer level.

Risk Warning

The above content is for reference only and does not constitute investment advice. The stock market carries risks, and investment should be made with caution. The market analysis, industry judgments, and stock comments in this article are based on public information, and their accuracy, completeness, or timeliness are not guaranteed. Investors should make independent judgments and bear investment risks.