The Hang Seng index continued its recent downward trend on Tuesday as Asian stocks retreated. The index, which tracks the biggest companies in China, dropped by more than 1.3% on Tuesday, joining the Nikkei 225 and Kospi. 

The Hang Seng index crashed after the Bank of Japan changed its tune about interest rates. As was widely expected, the bank decided to hike rates to 0.0%, moving from negative rates. It was the first time in 17 years that the bank hiked rates.

The index has also plunged as tensions between the United States and China intensified. Last week, the House of Representatives delivered a vote that could ban TikTok in the US. The politicians argue that the app was a national security threat.

TikTok is not the only Chinese company that America is targeting. The officials are also targeting WuXi, a large Hang Seng constituent. They argue the federal government and companies with US contracts should stop contracting with Chinese companies. 

The legislators argue that WuXi has ties to the Chinese government, a claim that WuXi has rejected. In a statement, the company said that it had hired advisors to set the record straight about its operations in the US.

Still, Wuxi stocks have been the worst performers in the Hang Seng index this year. WuXi Biologics stock price has crashed by over 52% in 2024 while WuXi AppTech has fallen by over 49%.

There have been other top laggards in the index. Zhongsheng Group, a large Chinese auto dealer, has plunged by over 29%, making it the third-worst-performing company in the Hang Seng index.

New World, a large real estate company, has dropped by 23% while China Overseas, Hang Lung, and Alibaba Health have been the other laggards. 

On the other hand, the top gainers in the Hang Seng index are firms like Xinyi Solar, CNOOC, PetroChina, Trip.com, and China Resources Land. 

Hang Seng index chart by TradingView

The daily chart shows that the Hang Seng index has been in a slow recovery path after bottoming at H$14,810 in January. It rebounded and peaked at H$17,196 this month. As it jumped, the index moved above the upper side of the descending channel shown in black.

The Hang Seng index has pulled back and is oscillating at the 50-day and 100-day Exponential Moving Averages (EMA).

On the positive side, the index has formed what looks like an inverse head and shoulders pattern. In most cases, this is one of the most bullish signs in the market. Therefore, the outlook for the Hang Seng index is relatively bullish, with the initial target being the YTD high of H$17,196. A break above that level will open the possibility of it spiking to H$18,000.

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