Hang Seng Index Forecast After Starting Strong in 2022

Jan 12, 2022 12:02 PM ET
Hang Seng Index Forecast After Starting Strong in 2022

The Hang Seng index has had a strong start of 2022 as investors rush to buy the dips. On Wednesday, the index jumped by over 2%, making it the best performer in Asia. The index is trading at $24,243, which is its highest level since December 13th. It has risen by over 7% this year while its American peers like Nasdaq 100 and S&P 500 indices have retreated.

Hang Seng was pressured in 2021

2021 was a difficult year for Hang Seng, the blue-chip Hong Kong index. The index crashed by over 27% from its highest level in the year. In contrast, most global indices like the Euro Stoxx 50, Nasdaq 100, and S&P 500 jumped by double-digits as low-interest rates provided the much-needed support.

The Hang Seng, on the other hand, was hit by a triple-punch. First, the index suffered as most real estate companies in the index struggled as the Evergrande crisis happened. 

For starters, real estate has been a leading industry in China for years. During this time, most property groups have done well. To achieve that, they borrowed heavily internally and from the international market. Most of them also took huge customer deposits.

In 2021, Beijing decided to disrupt this growth by implementing measures to reduce leverage in the industry. As a result, many companies like Evergrande and Modern Land struggled and are on the brisk. Therefore, most real estate stocks in the Hang Seng declined sharply. Similarly, many insurance firms that have exposure to the industry declined.

Gambling and tech crackdown

Second, gambling stocks are important for the Hang Seng index. In 2021, Chinese authorities decided to disrupt the industry, which they believe is used in money laundering. As a result, the two gambling stocks in Hang Seng declined by double-digits.

Third, and most importantly, Chinese authorities intensified their crackdown on the tech industry. For example, they asked Alibaba to pay billions of dollars for its uncompetitive behavior. They also asked companies like Meituan to change its business model and recognize its riders as employees. 

At the same time, they implemented a major crackdown in the online gaming industry. For example, a Hang Seng company like Tencent was forced to reduce the number of hours that people spend in games. As a result, most tech stocks like Alibaba, Tencent, and Meituan shares declined by over 40% in 2021.

Hang Seng cheap

The Hang Seng index has jumped sharply this year for three main reasons. First, analysts expect that the Hong Kong economy will have a steady recovery this year. Besides, the number of Covid-19 cases is expected to decline and there will be no protests.

Second, investors believe that the worst-case scenario in the gambling, real estate, and technology sector has been already priced in.

Third, and most importantly, the Hang Seng index has bounced back because it is relatively cheap. For example, while the S&P 500 index has a PE ratio of over 25, the HSI index has a PE ratio of about 9.55.

Hang Seng index forecast

The daily chart shows that the Hang Seng index was in a deep sell-off in 2021. As it dropped, it formed a descending channel that is shown in blue. The index has bounced back this year and is slightly below the upper side of this channel. It has also moved slightly above the 25-day and 50-day moving averages. 

Therefore, there is a likelihood that the Hang Seng index will keep rising as bulls target the key resistance level at $25,000 in the near term.

The Hang Seng price chart


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