Hang Seng Index falls 1.8% to break below 23,000 support

The Hang Seng Index fell 1.8% to below 23,000 on Thursday, breaching a key support level as traders weighed a hawkish Federal Reserve outlook and renewed tech-sector weakness on Wall Street.

"The break below 23,000 is significant because it was a level that held during the Iran war selloff in March," said Kevin Ip, equity strategist at Edgen. "Without a clear catalyst to reverse sentiment, the next support sits around 22,500."

The selloff was broad-based, with technology and property stocks leading declines. The Hang Seng Tech Index dropped more than 2%, tracking a 0.4% decline in the Nasdaq Composite to 25,476.64 overnight. Trading turnover reached HK$128 billion, above the 20-day average of HK$112 billion, suggesting institutional participation in the selloff.

The breach of 23,000 threatens to trigger stop-loss orders and forced liquidation among leveraged retail positions, potentially accelerating the decline. Investors now face a data-heavy week ahead, with China's official manufacturing PMI due June 30 and the PBoC's quarterly monetary policy meeting expected to set the tone for July.

The selloff in Hong Kong tracked a broader risk-off shift across Asian markets. The Shanghai Composite Index fell 0.6%, while South Korea's KOSPI dropped 1.2%, extending its decline from earlier in the week. Japan's Nikkei 225 lost 0.8%.

The Hong Kong dollar traded near the weak end of its 7.75-7.85 per dollar band, with one-year implied volatility dropping to its lowest since January 2022, according to Bloomberg data. Low volatility and cheap borrowing costs have made it easier for traders to short the local currency against the greenback in a carry trade that has further pressured the city's equity market.

Cross-asset pressure mounts as yields, currency weigh

The U.S. 10-year Treasury yield fell to 4.40% from 4.50% a day earlier, but the 2-year yield remained elevated at 4.15%, reflecting market expectations that the Federal Reserve could raise its benchmark rate by year-end. CME Group's FedWatch tool shows traders pricing in at least one rate hike by December, a shift that has strengthened the dollar and pulled capital from emerging markets.

The dollar index rose 0.2% to 101.60, while gold slumped more than 3% to below $4,000 an ounce for the first time since November, pointing to a broad deleveraging across risk assets.

Oil prices continued their decline, with Brent crude falling 3.8% to $73.87 a barrel and West Texas Intermediate dropping below $70, returning to pre-war levels after the U.S. and Iran signed a memorandum of understanding to reopen the Strait of Hormuz. The decline in energy costs may ease inflationary pressure but has not yet translated into a recovery in risk appetite.

Sector breakdown shows broad weakness

All three major sectors of the Hang Seng Index traded in negative territory. Chinese tech giants listed in Hong Kong bore the brunt of the selling, with Tencent Holdings (0700.HK) falling 2.3% and Alibaba Group (9988.HK) dropping 1.8%. Property developers also came under pressure, with Longfor Group sliding 3.1% after ongoing concerns about the sector's debt restructuring progress.

Southbound Stock Connect flows showed net selling of HK$3.2 billion, as mainland investors reduced exposure to Hong Kong stocks, while northbound flows into A-shares were also negative at RMB 1.8 billion.

This article is for informational purposes only and does not constitute investment advice.