The Hang Seng Index remains under pressure this week as investors focus on the ongoing trade war between the United States and China. After peaking at $24,855 on March 19, the blue-chip index has plunged to a low of H$20,000, its lowest level since February 3rd this year. It has plummeted by 20%, meaning that it is in a technical bear market. This article explores the top reasons to buy this dip.
Hang Seng Index stocks don’t do a lot of business in the US
The first main reason why the Hang Seng Index may bounce back is that many of its biggest constituents may not be affected severely by the ongoing trade war between the US and China.
Tencent, the biggest company in the index, makes most of its money in China, with only a tiny part of its business coming from the United States. It is also a service-based company that will not be affected by these tariffs.
ICBC is the next biggest company in the index, with a market cap of over $305 billion. Banks are not directly affected by these tariffs. Instead, they are affected by China’s stimulus measures that tend to squeeze their margins.
Alibaba, the third-biggest company in the Hang Seng Index, is a global company that does business around the world. Alibaba’s business may be affected slightly by the ongoing tariffs since the US is the biggest source of traffic to the site. However, the question is whether US importers have an alternative other than buying from China.
The other top companies in the index like China Mobile, Bank of China, Petrochina, HSBC, BYD, and Xiaomi have a small exposure to the United States.
In line with this, data shows that China has continued to reduce its exposure to the United States as tensions between the two countries have worsened. China’s exports to the US stood at over $438 billion in 2024, much lower than the $507 billion it sold in 2017 and the $536 billion it sold during the pandemic.
China stimulus to offset Trump’s tariffs
The other reason why the Hang Seng Index will bounce back is that China has tools to respond to Trump’s tariffs. Beijing announced a reciprocal 34% tariff on US goods on Friday. In response, Trump warned that he will impose a 50% tariff on all Chinese goods.
In a statement on Tuesday, China said that it would fight to the end to defend its business. On the same day that officials said that, they let the Chinese yuan crash, as we predicted during the weekend. A weaker yuan makes Chinese goods cheaper in other countries.
China is also said to be considering more stimulus measures to support local companies, including those in the Hang Seng Index. Historically, Chinese firms have done well when the government implements stimulus measures.
Hang Seng Index technical analysis
HSI chart by TradingView
The daily chart shows that the Hang Seng Index is still in an uptrend. It remains above the lower side of the ascending channel that connects the lowest swings since August last year.
It remains above the 200-day moving average, a positive move. Also, the Relative Strength Index (RSI) has moved to the oversold level. Therefore, the index will likely bounce back, and possibly move to the upper side of the channel at H$25,000 in the next few weeks.
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