What is the Hang Seng Index (HSI)?
The Hang Seng Index (HSI) is a market capitalization-weighted stock market index that tracks the performance of the largest companies listed on the Hong Kong Stock Exchange.
Comprised of over 80 of the biggest Hong Kong-listed enterprises, the Hang Seng Index is the main indicator of the performance of the equity instruments listed in this exchange.
The Hang Seng Index is maintained by the Hang Seng Indexes Company, which is a wholly-owned subsidiary of the Hang Seng Bank. It was founded in 1969 by Ho Sin Hang, who was Chairman of the Hang Seng Bank at the time. Hang aimed to create a benchmark index representing the Hong Kong stock market, similar to the Dow Jones Industrial Average (DJIA) and the S&P 500 in the United States.
History tip: The Hang Seng index definition comes from the name of the bank that created it.
Originally set at 100 points, the Hang Seng Index surpassed the 10,000 points milestone in December 1993 and the 20,000 level in December 2006 as indicated (see Hang Seng Index chart above).
The index reached an all-time high of 33,484 points in January 2018 before starting a sharp descent up until now. The value of the Hang Seng Index today stands at around 15,000 points.
History of the Hang Seng Index
When it was first published in 1969, the Hang Seng Index was measured across 33 constituent stocks. In 1985, it adopted its current grouping into four sub-indexes representing industry sectors:
- Hang Seng Finance Sub-index
- Hang Seng Utilities Sub-index
- Hang Seng Properties Sub-index
- Hang Seng Commerce & Industries Sub-index
This classification helped clarify the performance of important segments of Hong Kong’s economy.
Over the years, the total number of constituents has been progressively expanded beyond 80 as of December 2023. The Hang Seng Indexes Company rebalances the index quarterly, reviewing the list of constituents to ensure that their weight corresponds to their current market capitalization. Stocks must meet certain minimum requirements related to market value, liquidity, and listing history to qualify for inclusion.
The Hang Seng Index hit its record high of 33,484.08 points in January 2018, before declining over the subsequent years. Weakness in Chinese equities and global growth concerns weighed on Hong Kong stocks.
The index fell below 15,000 for the first time in years in March 2020 amidst the COVID-19 pandemic sell-off. Later, it regained some of that lost territory but has been once again touching those low levels lately as of January 2024.
The Hang Seng Index meaning for investors is quite important to analyze the performance of stocks within Hong Kong and China and it is used to gauge how equities as a whole may be faring in the Asian region as well.
How to Trade the Hang Seng Index?
There are a few ways for investors to gain exposure to the Hang Seng Index:
- Buy Shares of the Index’s Constituents: Investors can buy and sell shares of the Hang Seng index companies. This allows for targeted exposure to Hong Kong/Chinese blue-chip stocks.
- Hang Seng Index ETFs: Exchange-traded funds (ETFs) like the Hang Seng Index ETF (SEHK:2833) or the iShares Core Hang Seng Index ETF (SEHK: 3115) directly track the performance of the underlying index. ETFs are listed in exchange and can be easily bought and sold like stocks and they provide direct exposure to the index’s price movements.
- Futures and Options: Futures and options contracts on the Hang Seng Index are traded on the Hong Kong Futures Exchange and many global derivatives exchanges. These provide leveraged exposure for short-term traders or hedging purposes.
- Hang Seng Index Funds: While not as liquid as ETFs, open-ended index-tracking funds like the Hang Seng Index Fund can be another way to mimic the index performance.
The Hang Seng Index can be readily tracked or traded through these instruments by investors looking to gain exposure to Hong Kong/Chinese equities.
Structure of the Hang Seng Index
The Hang Seng Index contains four sub-indexes classifying constituent stocks into industry sectors:
- Hang Seng Finance Sub-Index: Includes banks, insurance companies, and other financial enterprises.
- Hang Seng Utilities Sub-Index: Contains utility companies such as electric, gas, and water providers.
- Hang Seng Properties Sub-Index: Covers real estate companies and property trusts.
- Hang Seng Commerce & Industry Sub-Index: Represents commercial and industrial companies spanning areas like information technology, retail, energy, materials, and more.
The finance and commerce/industry sectors have the highest weighting in the index. An individual stock cannot account for more than 10% of the overall index. Stocks must have a listing history of at least 24 months to qualify for inclusion.
Meanwhile, in 2020, Hang Seng Indexes launched the Hang Seng Tech Index, a benchmark that tracks the performance of the 30 largest companies listed on the Hong Kong Stock Exchange by market capitalization.
The technology sector currently has a major impact on the performance of the Hang Seng index but these companies are still a part of the benchmark’s Commerce & Industry sub-index.
How Many Stocks Are in The Hang Seng Index?
The Hang Seng Index contains the stocks of major Hong Kong and Chinese enterprises listed on the Hong Kong Stock Exchange. The number of constituents varies but usually averages approximately 80 stocks.
As of December 2023, 82 stocks make up the Hang Seng Index. This number fluctuates modestly over time as the Hang Seng Indexes Company reviews the composition and weights every quarter and makes additions and deletions deemed necessary to maintain optimal representation of the Hong Kong equity market.
The top 5 companies in the index account for 36.2% of its portfolio. These companies are:
|China Construction Bank
These companies have an outsized impact on the index’s performance.
How Do You Invest in the Hang Seng Index?
There are multiple ways for both retail and institutional investors to gain exposure to the Hang Seng Index:
- Purchase Shares of the Index’s Constituents: Investors can buy stocks of the companies included in the index to mimic their performance. This process has to be executed manually and the exact percentage invested in each of the 82 companies that make up the index would have to be adjusted and rebalanced periodically. This makes this method the least convenient and accurate of all.
- Hang Seng Index ETFs: Exchange-traded funds like the Hang Seng Index ETF (SEHK:2833) or the iShares Core Hang Seng Index ETF (SEHK: 3115) track the performance of the Hang Seng index. These instruments can be easily bought via a brokerage firm and added to the investment portfolio to gain exposure to Hong Kong’s stock market. The expense ratios of both ETFs mentioned here are relatively low, making them a cheap alternative to invest in the Hang Seng index.
- Hang Seng Index Mutual Funds & Index Funds: Various open-ended mutual funds and index funds track the Hang Seng Index. These vehicles offer exposure to this Asian benchmark as well but their trading costs and management fees often surpass those charged by ETFs.
- Futures & Options: Futures and options contracts on the Hang Seng Index are listed on various derivatives exchanges. These instruments can be used to speculate on the future price movements of the index or hedge against drawdowns for investors who have a large exposure to Asian stocks.
In most cases, the easiest route for non-institutional investors is to invest in ETFs or mutual funds whose objective is to mimic the performance of the Hang Seng Index to gain broad exposure to the Hong Kong/Chinese equity market. Active traders may prefer to use futures and options to speculate on the index’s price movements.
How Is the Hang Seng Index Calculated?
The Hang Seng Index is calculated by using a free-float-adjusted market capitalization weighting methodology designed to accurately represent the overall performance of the Hong Kong stock market.
The exact formula for the index’s calculation is:
The current market value of the index’s constituents is calculated by taking the free-float-adjusted market cap of each stock in Hong Kong dollars. Free-float refers to the number of shares that are currently accessible on public exchanges, excluding locked-in shares.
This current market cap number is then divided by the base period market value, set on July 31, 1964, back when the Hang Seng Index first began trading at 100 points. The index is updated in real-time every 15 seconds during the Hong Kong Stock Exchange’s regular trading hours.
Which country is the Hang Seng index for?
What is the highest level the Hang Seng Index has reached?
Is the Hang Seng Index Chinese?
What is the name of the Hong Kong share market?
- Hang Seng Index (HSI)