The Hang Seng Index is one of the most commonly cited indices in the world and is used as a proxy for the broader Hong Kong stock market. The index also includes some of China’s biggest companies, making it an important indicator of investment sentiment towards the world’s second largest economy.
What is the Hang Seng Index?
The Hang Seng Index (HSI) was established by the Hang Seng bank – which is itself one of the constituents of the index – in an effort to create the equivalent of a Dow Jones Index for Hong Kong. Its value was set at 100 points based on the market close on July 31, 1964, though the index was not officially published until 1969.
It is made up of the 50 largest companies listed on the Hong Kong Stock Exchange and is a capitalisation-weighted index, meaning the component companies are each given a weighting relative to their market value. The combined value of the index was around $US3.3 trillion in 2021.
What companies make up the HSI?
The HSI today includes a mixture of Hong Kong and mainland China-based firms, as well as global names like UK-based HSBC. Since the handover of Hong Kong from the UK to China in 1997, mainland businesses have come to dominate the index. This includes the likes of tech conglomerate Tencent Holdings and the Industrial and Commercial Bank of China (ICBC), which rank among the largest companies in the world.
Sub-indices
Since the mid-1980s, the HSI has also been divided into four sub-indices, with companies grouped by sector. These are:
Hang Seng Finance Sub-Index
Hang Seng Utilities Sub-index
Hang Seng Properties Sub-index
Hang Seng Commerce & Industry Sub-index
The finance sub-index is by far the largest of these by weighting.
Why is the HSI important to traders?
The Hang Seng is among the most closely watched indices in the world and is one of the key benchmarks of the so-called Asian trading session, alongside the Nikkei 225 and the ASX 200. Along with the Shanghai Composite, it is also considered a barometer of the Chinese economy and is used as the basis for numerous investment instruments, such as exchange-traded funds.
What has the recent history of the Hang Seng been?
It’s a well-established fact that markets hate uncertainty so it’s no surprise that the protests that took hold of Hong Kong in 2019, along with the trade war between the US and China have had a negative impact on the HSI.
However, the index rebounded strongly in December as the US and China moved towards a trade agreement and a big win from anti-government candidates in Hong Kong elections fueled hopes that the worst might be over. However, the HSI was easily outshone by the Shanghai Composite Index, which gained 22 per cent during the year, compared to the HSI’s 9 percent.
The HSI also struggled in 2020, dropping 3.4% for the year, and while 2021 delivered the Hang Seng’s strongest start to a year in more than 35 years, by mid-way through the year fears of interference from China had the HSI underperforming most global markets.
How the trade the HSI
Buy shares of companies listed on the index
Shares in companies listed on the Hang Seng can be easily traded via our platform. Directly buying and selling the shares of companies on the index, especially those based in mainland China, is a popular option among traders and investors looking for exposure to the world’s second largest economy.
Buy HSI ETFs
For investors looking for a broad exposure to the Hong Kong and Chinese markets, an exchange-traded fund (ETF) may be an option. These are publicly listed investment instruments that track the performance of the HSI.
Hang Seng Futures
Investors can also choose to trade HSI futures contracts or CFDs (contracts for difference). This essentially involves betting on where the index will be at a point in the future, and those trading this way do not take ownership of the underlying assets. These trades are normally done on margin, meaning the trader puts a certain amount of money towards the trade and borrows the rest from the broker to increase their leverage. This can be done for both the index and many of its component companies.
Why the HSI belongs on your watchlist
The Hang Seng tracks the performance of many of China’s largest companies, as well as a number of big global and regional players. For traders, it can serve as a useful reference point on investor sentiment surrounding China, as well as the basis for many investment instruments.