Find out about the Hang Seng Index. The Asian market is still labeled as “emerging,” despite having experienced incredible expansion over the past decade. One of the most comprehensive indices to measure the economic and financial health of China is the Hang Seng Index (HSI), which provides a clear picture of the performance of the stock market in Hong Kong. Let’s find out what the Hang Seng Index is, which companies make it up and what are the best investment solutions.
What is the Hang Seng Index
The Hang Seng Index represents a stock market index that aims to replicate the securities of the Hong Kong stock market. Although it is not generally considered to be in the same league as the major world indices, it is an indicator that is followed by most traders. It also represents a historical index, considering that it reached its 50th anniversary in November 2019.
The index consists of 50 companies, which make up about 60% of the total capitalization of the Hong Kong Stock Exchange. Since it is a value-weighted index, it is weighted by market capitalization. In other words, more weight is given to stocks with a higher market value: the performance of large companies therefore has a greater impact than smaller companies.
Index Composition: Which Companies Are Included
Now that we have described what the Hang Seng Index is, it is necessary to analyze which are the main companies included in the basket. As anticipated, the index incorporates the 50 companies with the highest market capitalization listed on the Hong Kong Stock Exchange.
The basket includes companies such as Xiaomi, Galaxy Entertainment Group (GEG), China Petroleum & Chemical Corporation, Wharf Real Estate Investment Company Limited and Lenovo Group Limited. Although it is not a mainland China index, it encompasses major Chinese stocks that show high growth prospects.
The Hang Seng Index can be considered a public company for all intents and purposes, although the parent company HSBC continues to hold a majority stake. In addition, the sectors covered by the companies included in the Hang Seng Index are many and varied, allowing for the development of a broadly diversified basket.
Price and Historical Trend
Before investing in any stock market index, it is advisable to give due consideration to the study of technical analysis. In particular, thanks to the observation of charts, it is possible to make well-founded investment decisions based on backtest analysis that can help formulate reliable hypotheses on the future trend of the index.
The Hang Seng was created in 1969, the year in which it debuted on the stock exchange with a valuation of 100 basis points. In December 1993, the index surpassed the 10,000 point threshold, while towards the end of 2007 it reached 30,000. To date, the maximum value recorded by the index is 33,223.58 points, touched in January 2018. Subsequently, the index went through a phase of volatility that prevented it from pushing further and reaching new peaks.
How to Invest in Hang Seng
To invest in the Hang Seng Index, several solutions can be considered. A first way is related to investing in CFDs, a particularly advantageous choice also from the point of view of commissions. CFDs (Contracts For Difference) are derivatives that allow investors to negotiate contracts without actually owning the underlying asset. They allow investors to invest in all the main securities included in the Hang Seng index in a single solution. The advantage of CFDs is that they allow traders to take advantage of a dual trading mode: upwards, if an increase in the value of the underlying is expected, or downwards, if an imminent fall in the underlying is expected (in which case short selling is implemented).
The platform preferred by traders who want to invest online on stock indices is eToro, a specialized operator that boasts competitive commissions and practicality on trading, thanks to some advanced services (Copy Trading).
Best Hong Seng Index ETFs
ETFs represent another interesting solution for investing in the Hong Kong Stock Exchange. An ETF is nothing more than a passively managed fund whose investment objective is to replicate the performance of a benchmark.
One of the best solutions is HSBC Hang Seng TECH UCITS ETF HKD(ISIN IE00BMWXKN31), an Irish fund that invests in IT stocks listed in Hong Kong and adopts a policy of reinvesting dividends in the fund. The strategy involves total replication of the underlying benchmark, which is done through the purchase of all components. The total annual cost of this ETF is 0.50%.
Another ETF that allows you to invest in the Hang Seng Index is the Lyxor Hong Kong (HSI) UCITS ETF (ISIN LU1900067940). This is a Luxembourg fund with more years of experience (it has been active for more than 5 years) and which distributes dividends to subscribers on a semi-annual basis. The investment policy of the fund foresees a synthetic replication of the benchmark performance, implemented through a swap agreed with a counterparty. The total annual cost amounts to 0.65%.
Forecast for the Future: Investment Opportunities and Risks
Having reached the conclusion of this analysis, it is important to note certain aspects. Among the main strengths of the Hang Seng Index, we cannot overlook the fact that the basket is widely diversified and includes some important Asian companies. Furthermore, despite the fact that China represents an economic powerhouse second only to the United States, it is still considered an emerging and potentially expanding market.
The pandemic continues to be well present and is certainly a factor not to be neglected, as well as the volatility shown in the last 4 years by the index. At the moment, financial analysts confirm bullish forecasts for 2022, although the most reasonable decision is to focus on the long-term growth of the Asian market