A market capitalization-weighted index of 40 of the largest companies that trade on the Hong Kong Exchange. The Hang Seng Index is maintained by a subsidiary of Hang Seng Bank, and has been published since 1969. The index aims to capture the leadership of the Hong Kong exchange, and covers approximately 65% of its total market capitalization. The Hang Seng members are also classified into one of four sub-indexes based on the main lines of business including commerce and industry, finance, utilities and properties.
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Technical Analysis Hang Seng Index
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About Hang Seng
Hang Seng is the largest index of the Hong Kong Stock Exchange. The basket focuses on credit and financial institutions (the main heavyweights are the largest banks on the planet). Because of this feature, Hang Seng is called an indicator of the state of the financial sector. Futures, options are traded on it, and there are also ETF funds that facilitate long-term investments in the index.The Hang Seng Index is characterized by a long-term bullish trend and is included in investment portfolios with a planning horizon of years.
Futures on the Hang Seng Index are traded on the Hong Kong Exchanges and Clearing (HKEX) under the ticker HSI. The minimum price move is 1 point, 50 Hong Kong dollars. Trading on the platform takes place from 9:15 to 03:00 local time with breaks from 12:00 to 13:00 and from 16:30 to 17:15 (GMT+08:00 throughout the year). Mini-Hang Seng Index Futures, under the ticker MHI, are also traded on the platform. Their size corresponds to the value of the Hang Seng Index multiplied by 10 Hong Kong dollars. Mini-futures are traded at the same time as standard ones. The minimum price change is 1 index point or 10 dollars.
Options on both types of futures are traded on the Hong Kong Stock Exchange. Futures on this index are also available on the Rio Stock Exchange (Brasil Bolsa Balcão S.A.).
The developer of the index is said to be Stanley Kwan, one of the Hong Kong bankers. The provider of the Hang Seng Index is Hang Seng Indexes Company Limited, this company is a subsidiary of Hang Seng Bank. Hang Seng Indexes was founded in 1984 and since then provides calculation of more than 800+ stock indices.
The Hang Seng Index was launched on November 24, 1969, and the same methodology was used to calculate the index prices up to July 31, 1964. The basket consists of 50 companies listed on the HKEX.
The index is characterized by sharp jerks in both directions during crisis phenomena in the global economy. Thus, in the period from 1970 to 1974, the Hang Seng rate soared to 1650 and collapsed to 150 points. Subsequently, such "swings" were repeated many times.
In 2007, the historical extreme was updated at the moment, reaching a maximum of 31958.41 points. By the fall of 2008, the rate fell below 11,000 points. This is the largest drop in the index during its existence, it took more than 10 years to recover. Only in January 2018, the previous historical maximum was updated. Since the 80s of the 20th century, a moderate bullish trend has been observed, after crises, there is invariably a recovery and update of historical extremes.
The index capitalization exceeds $1 trillion. Annual volatility exceeds 20%.
When forecasting the Hang Seng Index rate, you need to consider:
- The state of the financial sector as a whole and the stock prices of the most "heavy" components of the basket;
- The connection between the economies of Hong Kong and China;
- The geopolitical situation in the world. Thus, in the early 70s, without any economic prerequisites, the index grew. The reason for this is the restoration of diplomatic relations between the United States and China;
- The yuan exchange rate;
- The state of the HKEX exchange itself. In 2011, the regulator revoked its license for several days, which also affected the HSI index;
- Force majeure situations, a striking example is the 2020 pandemic, which caused the index to decline by more than 7,000 points.
Hang Seng Index Basket
The basket consists of 50 largest companies whose shares are traded on the Hong Kong Stock Exchange. The financial sector is by far the leader, it provides 11 companies, their total "weight" in the basket fluctuates in the range of 45-50%. In second and third place are the IT sector and construction, they account for about 12% and 10% respectively.In first place is the Chinese corporation Tencent with a "weight" of about 12%. Next come 5 representatives of the financial sector, the total "weight" of which exceeds 35% of the entire basket. Of the first 10 companies, 7 are in the financial sector. The Hang Seng index basket is revised on a quarterly basis. Shares must meet a number of criteria:
Market Value (market value), is defined as the product of the value of shares and their number. For companies listed on other exchanges, only the number of securities registered on HKEX is taken into account. Leaders in this indicator are selected; the company must be in the top 10%.
There are turnover requirements. All companies are ranked by this indicator and the indicators for the last 8 quarters are studied. For each quarter, when the company is among the 10% leaders in terms of turnover, it is awarded 1 point, this indicator is assessed separately for the year over a two-year period. If it manages to stay among the 10% leaders during the year, the company receives another 2 points, so in theory it is possible to get a maximum of 12 points. To pass the filter, it is enough to score 8 points. Concessions are possible for companies with high turnover, but a listing history of less than 12 months.
Depending on the rank occupied by Market Value, a minimum period requirement is introduced since the moment. For ranks 1-5, at least 3 months must pass since the listing on HKEX, ranks 6-15 - from 6 months, ranks 16-20 - from 12 months, ranks 21-25 - 18 months, below 25 - at least 24 months.
The final decision on inclusion/exclusion of securities from the Han Sen index basket is made by a special committee. The basket is revised within 8 weeks after the end of the next quarter.
If a Hang Seng company meets the capitalization and turnover requirements but falls short of a non-basket candidate on these metrics, it will be removed from the index.
Hang Seng Family
The Hang Seng Index has several sub-indices:- HSI Total Return – the same Han Sen, but taking into account the full reinvestment of dividends accrued by the companies included in the basket;
- HSI-Finance – the focus is on the financial sector, the basket includes shares of 12 of the largest financial and credit institutions;
- HSI-Utilities – depends on the share prices of 4 of the largest energy companies;
- HSI-Properties – calculated taking into account the share prices of the largest asset management companies;
- HSI-Commerce & Industry – dedicated to industrial and trading companies, the 25 largest are taken into account.
ETF
Taking into account inverse and leveraged ETFs, the Han Sen index replicates more than 10 funds. Among them:- China AMC HSI ETF;
- China Southern HSI ETF;
- ChinaAMC SH-HK Stock Connect Hang Seng Index ETF;
- ComStage HSI UCITS;
- Hang Seng Index ETF;
- iShares Core Hang Seng Index ETF;
- Reliance ETF Hang BeEs;
- Tracker Fund of Hong Kong.
The Hang Seng Index is suitable for analyzing the situation of the Asian region economy and the state of the financial sector around the world. The long-term bullish trend makes the index a suitable option for long-term investing (via ETF). The HSI is also suitable for medium- and short-term trading using futures and options.