The Hang Seng Index dropped by 1.50% on Thursday as it continued to underperform the broader market. This weakness was driven by Lenovo Group, whose stock tumbled by double digits amid the ongoing jitters in the artificial intelligence industry. It dropped to $23,955, down by 15% from its highest point this year.
Lenovo Group stock pushes Hong Kong stocks lower
The Hang Seng Index dropped as Lenovo Group dropped by over 13%. It fell to $26.22, down by over 30% from its highest point this year, and is trading at its lowest level since August 7 this year.
Lenovo’s crash coincided with the performance of its American peers like Dell Technologies and HP Enterprise. Dell dropped by over 10% to $507 after hitting the important resistance level of $600 earlier this month. HP Enterprise tumbled to $61.46 from this month’s high of $73.48.
These stocks dropped after Gartner delivered a big warning on the ongoing AI infrastructure build. In a report, the company estimated that, while AI infrastructure build will continue, there is a risk that some of the top companies will need to announce large writedowns.
The report argued that neocloud companies like Nebius, CoreWeave, and IREN will be among the most affected.
To a large extent, at least for now, companies like Lenovo Group and Dell will not be affected. Instead, they will continue to receive substantial demand from their top clients like neoclouds and hyperscalers.
Hua Long Grace Semiconductor, another top company in the AI industry in China, dropped by 8.73%. Weichai Power fell by 7.3%, while CMOC Group, Aluminium Corporation, Contemporary Amperex, and China Hongqiao fell by over 6%.
The Hang Seng Index’s retreat was offset by the modest gains by companies like BeOne Medicines, Xiaomi Corporation, Hansoh Pharmaceuticals, and Budweiser Brewing. All these stocks jumped by over 1%.
Hong Kong stocks reacted to the US inflation data
The Hang Seng Index is also falling because of the latest US consumer inflation report. In a statement on Wednesday, the Bureau of Labor Statistics (BLS) said that the headline and core inflation rose 3.7% and 2.6% last month. These numbers moved further away from the Federal Reserve’s target of 2.0%.
The metrics mean that the Federal Reserve will likely maintain a hawkish tone in the coming meetings. Hong Kong’s monetary authority always does what the Fed is doing because of the Hong Kong dollar peg.
Hang Seng Index technical analysis
Hang Seng Index chart | Source: TradingView
The daily chart shows that the Hang Seng Index has slipped sharply in the past few months. It dropped from a high of $28,045 earlier this year to the current $23,955.
The index formed a death cross pattern on September 14. This pattern happens when the 50-day Exponential Moving Average (EMA) drops below the 200-day average. It has remained below the Supertrend indicator.
Therefore, the index will likely continue falling, potentially to the key support level of $22,545, its lowest level on June 26.
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