The Hang Seng Index, which currently represents around 50 of Asia’s most capitalised businesses on Hong Kong Stock Exchange (HKSE), is a stock index that is used to gauge Asia’s financial market strength.
Hang Seng Indexes Company is a subsidiary Hang Seng Bank that compiles, publishes and manages the Hang Seng Index. It was established in 1969 with 100 points. The index assigns a weighting to companies based on their market capitalisation. This is similar to the UK’s FTSE100 or the German DAX. It is also different from the Dow Jones which lists companies based on their per-share price. A company can have a maximum weighting of 10% on the Hang Seng Index.
Hang Seng Indexes, a Hong Kong-based index, announced in March 2021 that it would increase its number of constituent companies to 80 by the middle of 2022 and eventually to 100 at that point.
The Hang Seng Index should not be confused with Hang Seng China Enterprises Index. This index tracks the performance 50 H-share Chinese mainland securities that are listed in Hong Kong.
Hang Seng 50 constituents
The Hang Seng Index components are divided into finance, properties and utilities, as well as commerce and industry. Tencent and Alibaba are two of the largest index constituents by weighting. HSBC, which was founded in British Hong Kong, as well as the pan-Asian insurance giant AIA Group, are also prominently featured in the index.
These sub-categories can be further divided into 12 sub-categories. Here is how the Hang Seng Index sector composition looked on July 6, 2021. This is the closest percentage point (Source: Hang Seng Indexes). Notice: The 12 th Category, Materials, did not have representatives as of July 2021.
How often does Hang Seng Index change?
The Hang Seng 50 Index is reviewed every quarter. Companies are admitted and omitted after an analysis and consultation with outside parties. A company must meet criteria that consider representativeness, market capitalisation and turnover. They should also have a minimum three-month listing history on the Hong Kong Stock Exchange.
How is the Hang Seng Index calculated
The Hang Seng 50 is calculated every two seconds during trading hours at the Hong Kong Stock Exchange. It uses a free-float adjusted equation that takes into account closing prices, current prices, and shares issued. It also uses a Freefloat adjusted Factor (FAF), and a Cap Factor(CF), which are values between 0 to 1 and adjusted quarterly.
What does the Hang Seng Index mean?
The Hang Seng 50 price indicates whether share prices are increasing or decreasing. The Hang Seng 50 price is rising, which means that specific companies or groups of companies are seeing gains. This is reflected in overall index price. If the Hang Seng 50’s price falls, it indicates that the index companies are experiencing a decrease in price.
The Hang Seng 50 ranking relies on a weighted calculation that considers market capitalisation. Companies with higher weightings will often have an outsized effect on the index.
What is the Hang Seng Index’s price?
Like any other stock index, the Hang Seng’s price is affected by a variety of fundamental as well as technical drivers that are linked to the Hong Kong/Chinese economic behaviour as well as international influences.
The index is dominated by companies based in mainland China. Therefore, news flows and economic data from the PRC are more influential than events centered in Hong Kong. Price can be affected by the US-China relationship, HK Dollar strength and economic data.
Although such drivers might be expected to move the index in one direction, it is not guaranteed that it will. Therefore traders need to consider how the determining factors interact rather than focusing on any one factor. Here are some key points to remember when trading the Hang Seng Index.
US-China relationship
The Hang Seng Index can be driven by the US-China relationship. The market can be affected by a lack of US-China sentiment. The Hang Seng Index saw a drop in 2018, as speculators were concerned about the slow progress of the US and China towards a trade agreement.
In addition, Hang Seng telco stocks like China Mobile and China Telecom were temporarily removed from the NYSE in the early 2021 due to perceived links with China’s military. This resulted in their price dropping on the Hang Seng Index.
These events make it worthwhile for traders to pay attention to how the US-China relationship unfolds on the emergence of relevant news events and how this relationship can have an impact on commerce across regions.
HK dollar strength
For an indication of potential Hang Seng Index moves, it may be worthwhile to keep an eye on the Hong Kong dollar (HKD). The HKD is pegged at USD in a range of 7.75 to 7.85.
Hong Kong’s central banking institution, the Hong Kong Monetary Authority buys and sells currency at each limit to regulate capital inflow and flow. The Hang Seng Index may be affected by trading close to 7.85 due to capital outflow. This is evident in the Index’s losses of 2018-2019. However, at 7.75, the potential for capital inflow could buoy the index.
Economic data/socio-political events
Hang Seng Index traders should be following Chinese GDP figures and trade balance statistics. They also need to follow industrial production measures such as PMIs. The Hang Seng Index rose 1.1% to 29,468 in June 2021 after data showed that Chinese manufacturing had increased for the previous month. This gives an insight into the reasons such figures are important.
To keep up-to-date with all the latest news that affect your trading, take a look at our calendar.
The average annual returns for the Hang Seng Index
The average annual return for the Hang Seng Index over the past ten years has been 2.8%. The average returns of the Hang Seng are basically what managed funds have earned in profits over the course a year.
Below are the annual returns for 2011-2020. Past performance is not guaranteed. (Source: Macrotrends)
Hang Seng Index Market Hours
The Hang Seng 50 is available from 9:30 to 4 PM local time during weekdays. There’s a one-hour lunch break at 12PM.
Learn more about stock market hours.
How to trade Hang Seng Index
The Hang Seng Index can be traded in many ways. You can get exposure to all 50 companies through any of these instruments.
Hang Seng Index CFDs
Contracts for Difference (CFDs), which are derivatives, take their price form the underlying market. In this case, the Hang Seng Index. You can speculate about whether an index will rise or fall in value, even though you won’t be purchasing it.
Find out more about CFDs.
Hang Seng Index futures
Futures contracts allow you to exchange assets at a fixed price and with a specific expiry date. Hang Seng contracts are different from most futures. They don’t require an underlying asset to trade, since an index is nothing but a number that represents a group or stocks.
Hang Seng Index options
Hang Seng options give you the option to purchase or sell the index at a fixed price and on a specific date.
You can trade the Hang Seng Index via options as soon as it becomes available. If you wish to do so, you could use CFDs.
Hang Seng Index stocks, ETFs
You can trade the Hang Seng Index via ETFs (or investment instruments that hold a number of stocks) if you have the opportunity. In this instance, it is the shares of the index’ constituents.
Stocks on the Hang Seng Index may also be traded separately, giving you the opportunity to concentrate on specific sectors.
Learn more about trading shares with us.
How to shorten the Hang Seng Index
The Hang Seng Index can be shorted by taking a position that the index is likely to fall. You can do this by shorting stocks or selling short Hang Seng contracts. If an ETF is available, traders might be interested in shorting the Hang Seng. If you feel Hang Seng stocks are overvalued, you may want to buy Put options or a Hang Seng option.
Learn more about Shorting a Market.
Can you invest in Hang Seng Index UK?
The Hang Seng Index can be invested in in the UK indirectly through a combination ETF, mutual funds, index funds, and trading derivatives using the above methods.
