The Hang Seng Index represents 50 of Asia’s largest companies on the Hong Kong Stock Exchange.
Hang Seng Indexes Company, which is a subsidiary Hang Seng Bank, created the index in 1969. The index has a value 100. The index assigns a weighting according to market capitalization to companies, similar to the UK FTSE100 and the German DAX. But it is different from the Dow Jones where companies are listed according to their per-share prices. The Hang Seng Index allows companies to have a maximum weighting up to 10%.
Hang Seng Indexes declared in March 2021 that the index would double the number of its constituent firms to 80 by mid-2022. The final goal is to reach 100 companies at that point.
The Hang Seng Index cannot be confused with the Hang Seng China Enterprises Index. It tracks the performance of 50 H.share Chinese mainland securities listed at Hong Kong.
Hang Seng 50 constituents
The Hang Seng Index comprises are divided into the categories finance and properties, utilities, commerce, and industry. Tencent, Alibaba and other Chinese companies are some of the most important constituents of this index. HSBC and AIA Group, a pan-Asian multinational insurance company, are other prominent companies featured in this index.
The sub-categories of the Hang Seng Index are further divided into 12 separate sub-categories. Here’s how Hang Seng Index’s sector composition looked at July 6, 2021. (Source: Hang Seng Indexes). Notice: Materials, the 12 th category had no representatives as at July 2021.
How frequently do Hang Seng Index companies make changes?
The Hang Seng 50 is subject to a quarterly review. Companies can be admitted or omitted based on analysis and consultations with external consultants. Selection criteria include financial performance, market capitalisation, market cap, and representativeness. Companies should also have a minimum of three years of history of listing on the Hong Kong Stock Exchange.
How does the Hang Seng Index calculate?
The Hang Seng 50 calculates at two-second intervals during Hong Kong Stock Exchange trading hours. This calculation uses a freefloat equation to take into account closing prices, current price, and issued shares. It also uses the Freefloat-adjusted Factor, (FAF), as well as a Cap Factor. These are values between 0 & 1 and adjusted every quarter.
What does Hang Seng Index’s price mean?
The Hang Seng 50 index price shows whether the share prices of the companies in the index have been rising or falling. If the Hang Seng 50 prices are rising it indicates that certain companies or groups of businesses are enjoying gains. This is reflected by the overall index’s value. The opposite is true. If the Hang Seng 50 prices are falling, this means that index companies have experienced a drop in price.
Hang Seng 50 is calculated using a weighted calculation which focuses on share capital. Share price fluctuations with larger weightings often have a significant impact on the wider index.
What drives the Hang Seng Index prices?
Like all stock indexes, the Hang Seng price is affected both by fundamental, and tech drivers. These are influenced by the Hong Kong/Chinese market as well foreign influences.
However, the majority of the index companies are located in mainland China. This means that news flow and economic data from China tends to have more impact on the index’s performance than Hong Kong-based events. The US-China relationship and strength of the HK$ as well as economic data can have a major impact on the price.
Although these drivers can be expected to move an index in a specific direction, it is impossible to predict how the move will unfold. Therefore, traders should look at how the various determining factors are interrelated and not focus on one factor. These are just some of the important things to keep in mind when trading Hang Seng Index.
US-China relations
The Hang Seng Index could be influenced by the US-China relationship. Markets can be affected by negative sentiment from the US and China. 2018 was an example of this. The Hang Seng Index fell as investors worried about China and the US’s slow progress towards a deal.
Additionally, Hang Seng telco stocks including China Mobile and China Telecom were delisted temporarily from the NYSE early 2021 on suspicion of links to the Chinese military. The Hang Seng Index subsequently lowered their prices.
Traders can benefit from such events by closely following the US-China relationship and the impact it has on commerce in different regions.
HK dollar strength
Hong Kong dollars (HKD) are worth monitoring for signs of possible Hang Seng Index changes. For example, the HKD is pegged against USD in a range between 7.75 – 7.85.
Hong Kong Monetary Authority is the central bank of Hong Kong. It buys and trades the currency at both the upper and lower limits to manage banking liquidity. Hang Seng Index trading near 7.85 can cause capital outflow. As evidenced by the Index’s losses over 2018-2019, 7.75 may see capital inflow.
Sociopolitical events/economical data
Hang Seng Index traders should pay attention to Chinese GDP figures. Also, trade balance statistics and industrial production data such as PMIs. After data showing an expansion of Chinese manufacturing in the prior month, Hang Seng Index surged 1.1% to 29,468. These figures provide insight into why these numbers are important.
Our economic calendar will keep you up-to date with all news releases that could impact your trading.
Average annual returns of Hang Seng Index
The Hang Seng Index’s average annual return has been 2.8% for the past ten-years. The average returns of Hang Seng represent the amount that managed funds will earn in profit for investors over a one-year period.
Below, you will find the annual returns from 2011 to 2020. Recall that past returns do not guarantee future performance. (Source: Macrotrends)
Hang Seng Index trading hours
The Hang Seng 50 can be reached from 9:30am to 4pm on weekdays. A lunch break is provided at 12pm.
More information on stock market hours.
How to trade Hang Seng Index
You can trade the Hang Seng Index in many different ways. You can have exposure to all 50 companies using any one of these instruments.
Hang Seng Index Forex CFDs
Contracts of difference (CFDs), or derivatives that are priced from the underlying markets, in this instance the Hang Seng Index, are contracts for difference. Because you won’t own the asset, it is possible to speculate on its future value.
Learn more about CFs.
Hang Seng Index futures
Futures contracts can be used to exchange an asset at a certain price on a given expiry date. Hang Seng contracts, unlike most futures, don’t have an actual physical asset to exchange. Instead, an index is a number that represents a collection of stocks.
Hang Seng Index options
Hang Seng Options are contracts that allow you to buy or sell the Index at a certain price on a given date.
CFDs would be the most convenient way to trade the Hang Seng Index as and when it becomes available.
Hang Seng Index stocks or ETFs
ETFs allow you to trade the Hang Seng Index, which are investments instruments that hold a set of stocks. This includes the shares of index constituents.
The Hang Seng Index stocks can be traded as an individual trade, giving investors the chance to focus their attention on specific areas.
Learn more about Share trading with us.
How to shorten Hang Seng Index
A short position in the Hang Seng Index is when you assume that the index will decline. This can be accomplished by selling short Hang Seng contracts, or shorting constituent stocks. Trading may also be an option, if the Hang Seng ETF is available. Optional options include buying Put options on Hang Seng stock if you think they are undervalued or purchasing a Put option to a Hang Seng ETF.
You can read more about shorting the market.
Can you make a UK investment in the Hang Seng Index?
You can either invest directly in the Hang Seng Index in UK using an ETF, mutual fund or index fund combination, or trade the security using derivatives as per the procedures outlined above.
