A stock market index is a measurement of a portion of the stock market. It is calculated from the prices of selected stocks (often a weighted average). It is a tool used by financial managers and investors to describe the market, and to compare the return on specific investments. Below you will find an interactive chart of the Hang Seng Index. Read about the Hang Seng Index.
The Hang Seng Index (HSI) is a market capitalization-weighted index that is made up of the 50 largest companies that trade on the Hong Kong stock exchange. The index is considered the most widely quoted barometer for the Hong Kong economy. However, since 1997, Hong Kong is a “special administrative region” of China. This has created close ties between the two economies and many Chinese companies have taken a prominent position on the Hang Seng Index. As of this writing, Tencent Holdings Ltd is the largest member of the Hang Seng index.
American investors are conditioned to follow the major U.S. indexes: the NYSE, NASDAQ, and S&P 500. These indexes provide a barometer for the overall performance of the stock market. The same indexes exist in foreign countries as well. In Hong Kong, the primary index is the Hang Seng Index. This index has evolved since the city was returned to mainland China from Britain in 1997. In this article, we’ll take a closer look at the Hang Seng Index with particular emphasis on how the index has evolved as mainland Chinese companies have become a major part of the index.
What is the Hang Seng index?
The Hang Seng index is a capitalization-weighted index that is made up of 50 of the largest and most liquid companies listed on the Hong Kong Stock Exchange.
The Hang Seng index is integral to Hong Kong and it continues to evolve. The index gives investors a snapshot of the health of Hong Kong’s stock market. Because Hong Kong is a global economy, the Hang Seng is frequently considered a proxy for the broader Asian market.
The Hang Seng index debuted in 1969. Prior to Hong Kong’s handover to mainland China from the British, the index featured very few mainland Chinese companies. Over the past 20 years, this balance has changed. Today, less than 50% of the stocks listed on the Hang Seng were on the index 20 years ago. This transformation has increased not only the number of Chinese companies that appear on the index, but also the weight that these companies carry. As of 2017, mainland companies accounted for 56% of the index by weight. Tencent Holdings Ltd. Is the largest equity on the Hang Seng index.
According to Chi Lo, senior economist for Greater China at BNP Paribas Investment Partners, opening the index to mainland companies shows that Hong Kong is coming to terms with the reality of Chinese influence. Says Lo, “Instead of calling it a good thing or a bad thing, I see it as a natural evolutionary process for Hong Kong to survive.”
What sectors are represented in the Hang Seng index?
The influence of mainland China can be seen in the composition of the prominent sectors of the Hang Seng index since 1997. Here’s a closer look at each sector.
Financials – Historically, this sector carries the most weight on the index. It peaked at 51% in 2009. As of 2017, Chinese companies comprised 24% of the sector’s weighting primarily due to the presence of two of mainland China’s largest companies namely Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., and Bank of China Ltd.
Real Estate – This sector has been more volatile. At the time of the handover, this sector accounted for 27% of the index. After falling to 11 percent in 2011, this sector has bounded back to comprise about 17% of the index’s weighting. Chinese real-estate companies only comprise 1.8% of the index.
Industrials – This sector has shrunk to a mere 0.9% of the index. In 1997, the sector was 12% of the index. In fact, only a single company – CITIC – is the only company remaining in the index.
Energy and Mining – This sector has emerged since the handover in 1997. With that in mind, it’s to be expected that the sector is primarily made up of Chinese companies such as Sinopec and CNOOC Ltd. As of 2017, the sector accounts for about 6.6% of the index.
Consumer – This sector has remained consistent, albeit a small part of the index. In 1997, the sector made up 2.1% of the index. That number is up slightly to 2.8%. Mainland Chinese companies are steadily making inroads into this category.
Information Technology – This is another sector that has emerged on the index since the handover in 1997. This sector is made up of two gigantic Chinese companies that combine to make this sector 11% of the overall index. One of these companies, Tencent Holdings Ltd, is the largest company on the entire index.
Telecom – This is another sector that had diminished in its influence on the sector. In 1999, the sector’s weighting was up to 26% but it has dropped to approximately 7%. Two large Chinese companies, China Unicom Hong Kong Ltd. and China Mobile Ltd are dominating the sector.
Media – This is the smallest of all the sectors. As you might expect, mainland Chinese companies are not represented in this sector.
How can investors invest in the Hang Seng index?
Investors who are considering investing in the Hang Seng should be mindful that the index carries a higher risk profile than many U.S. investments. One reason for this is that companies operating in China carry greater political risk.
Like the NASDAQ or S&P 500, the Hang Seng is the underlying index for many exchange-traded funds (ETFs). There are also different versions of the Hang Seng index that separate the index into a variety of niches. The major indexes include:
- Hang Seng China Enterprises Index
- Hang Seng China Affiliated Corporations Index
- Hang Seng China H-Financials Index
- Hang Seng Corporate Sustainability Index
- Hang Seng Mainland 100
- Hang Seng HK 35
- Hang Seng REIT Index
- HIS Volatility Index
- Hang Seng China 50 Index
- Hang Seng China AH Premium Index
- Hang Seng China A Industry Top Index
However, for U.S. investors, investing in the Hang Seng can be tricky. None of the ETFs are traded in the United States. A good alternative is the iShares MSCI Hong Kong Index Fund ETF (EWH). This fund tracks the MSCI Hong Kong Index which, like the Hang Seng, is a capitalization-weighted index.
Another option for investors to consider is American Depositary Receipts (ADRs) which represent individual companies on the Hang Seng.
The final word on the Hang Seng index
Perhaps no other country represents both the risk and reward of the global economy than China. Ever since Great Britain turned over Hong Kong to mainland China in 1997, the Hong Kong financial markets have been coming under the increasing influence of mainland companies. China’s influence on their neighboring economy is reflected in the Hang Seng Index. For this reason, the Hang Seng index is not only considered a barometer for the state of Hong Kong’s economy, but also a proxy for the economic health of the entire region.
American investors cannot invest directly in any of the many Hang Seng index funds but can find some U.S. ETFs that track Hong Kong stocks.