Hang Seng

Hang Seng Index is run by Hang Seng Indexes Company Limited, and it is meant to reflect the performance of large and liquid firms listed on the Hong Kong Stock Exchange (HKEX). 

It uses a free-float weighting methodology based on market capitalisation. In other words, the weight of the company depends on the market capitalisation adjusted for the number of freely tradable shares. Individual weightings are subject to certain restrictions in order to prevent too much concentration. 

The base date for the HSI is 31 July 1964, while the base value is 100 points. The calculations are made in Hong Kong dollars (HKD). 

It has outgrown its initial format consisting of 50 stocks. The HSI universe now consists of 90 stocks, which varies depending on the review of the index. 

The Hang Seng Index has evolved significantly since its launch in 1969. Following a series of index reforms, it currently comprises 90 constituents, although the number may change as index reviews are conducted. 

In the process of time, there have been many methodological and composition changes in the index, which have had an impact on the performance of the HSI as well as various global and regional financial and economic events such as the Asian financial crisis, global financial crisis, China's economic policy changes, the outbreak of the COVID-19 virus and others. 

Nowadays, the HSI includes the shares of mainland Chinese companies and companies of the new economy, which are traded in Hong Kong. 

The Hang Seng Index includes companies from a range of industries, including financial services, technology, consumer businesses, telecommunications, healthcare, energy and industrials. A significant portion of the index consists of Hong Kong-listed mainland Chinese companies.

Examples of major HSI constituents include:

The exact constituents and their weightings can change following index reviews. Recent Hang Seng/HKEX factsheets show HSBC, Tencent and Alibaba among the largest HSI constituents by weight, although exact weights change with market prices and index reviews.

The index review process considers factors such as market capitalisation, trading activity and representation of different parts of the Hong Kong market. Weightings are also adjusted periodically to maintain the prescribed methodology.

The HSI provides exposure to several major sectors of the Hong Kong stock market. The approximate sector representation can vary as constituent prices and index weightings change.

* Sector weights are indicative and based on recent HSI factsheets. Actual weightings change over time with market movements and index reviews.  

The Hang Seng Index is important for several reasons: 

• Exposure to China market: Most of the companies that form part of the HSI have significant presence in mainland China. This helps investors to keep an eye on the Chinese market. 
• Global market index: Movement of the HSI helps in determining the Asian market sentiments and appetite of global investors for risks. 
• Sector diversification: The HSI comprises various sectors including financial services, technology, consumer goods, telecommunication, health care and energy.  
• Performance benchmark: The HSI serves as a benchmark for assessing the performance of Hong Kong related investments by investors and fund managers. 

Some of these risks include the following: 

• Geopolitical risks: Fluctuations in China-US relationships and geopolitics can impact the market. 
• Fluctuations in currencies: Investors from India may be subject to currency fluctuations between the Indian rupee and the Hong Kong dollar in investments in foreign markets. 
• Concentration of the index: Although the HSI provides exposure to multiple sectors, it can still be concentrated in a few sectors and large companies. 
• Market volatility: Shares in Hong Kong and China can experience sharp swings in times of economic or political instability. 
• Regulatory risk: Regulatory changes in sectors such as technology, finance, property and others can have an effect on the constituents of the index. 
• Risk of the economy in China: Economic developments including economic growth and consumer spending in China can impact companies on the index. 

These risks need to be taken into consideration by investors together with their investment aims and risk appetite.

The Hang Seng Index could be of interest to those investors who are interested in investing in Hong Kong-listed securities and companies with connections to the Chinese economy. The index may be considered by investors who: 

• Have a higher level of risk appetite and can cope with market volatility. 
• Are planning to invest in stocks over a medium- to long period of time. 
• Need to expand geographical diversification of their portfolios beyond Indian stocks. 
• Are interested in sectors such as technology, financial services, consumer goods and telecommunications. 
• Are aware of all additional risks that are involved in international investments such as currency risks, etc. 

Potential investors need to consider many factors before deciding to invest.