Hang Seng Trading

An overview of China’s financial engine – Hang Seng

With a market cap weighted index of 40 of the largest companies traded to date on the Hong Kong Exchange, the Hang Seng Index (HSI) is one of Asia’s biggest indices, and one of the most relevant to Australian traders.

Maintained by the Hang Seng Bank, the HSI has been published since 1969, and is the leader of the HKE, covering 65% of its market capitalization. HS members are also classified into one of four sub-indices that include the commerce, utilities, properties and finance industries.

The Hang Seng chart is the most widely quoted barometer for the Chinese stock market and the Hong Kong economy. As Hong Kong’s status is known as a special administrative region of China, there are close ties between their economies and a lot of Chinese companies are listed on the Hong Kong Stock Exchange, still held in a majority by the British financial firm HSBC.

Interesting facts about the HS index

The Hang Seng Index was first published on the 24^th of November 1969 and it is, to this day, the largest indicator of overall market performance in Hong Kong. There are several indices belonging to the Hang Seng indices family including: Hang Seng China Enterprises Index, Hang Seng China AH Index Series, Hang Seng China H-Financials Index, Hang Seng Composite Index Series, Hang Seng China A Industry Top Index, Hang Seng Corporate Sustainability Index Series and Hang Seng Total Return Index Series.

The chairman of the Hang Seng Bank, Ho Sin Hang conceived the idea of creating the Hang Seng Index as the Dow Jones of Hong Kong. Upon publication its base of 100 points was set equivalent to the stocks’ total value as of market close on 31 July, 1964. This decision has had a huge influence on the Australian economy and markets all over the world.

The all-time low this index experienced was 58.61 points on August 31, 1967. Later the base value was established and the Hang Seng passed the 10,000-point milestone seen in October 18, 2007, while reaching it’s all-time high a few days later, on the 30^th of October 2007, at 31,958.41 points.

Index composition of HSI

Index formula

The factors influencing overall index price of the HSI

As with other indices, there are many macro and micro-economic factors that can influence the Hang Seng Index. As it has a close correlation to the Chinese economical current, the Chinese market has a great and almost immediate impact on the index.

One major economic shift involves the Yuan/Dollar peg being applied to a basket of currencies instead of just the USD. Starting January 1, 2017, the number of currencies in the basket was increased from 13 to 24, including the USD with a 22.4 percent weighting, and the local AUD with a 4.4 percent weighting. The impact of the Yuan devaluation in August 2015 by the People’s Bank of China (PBOC) shook the markets with three consecutive devaluations of the Yuan renminbi (CNY), remaining 30% lower than its previous value. With so many Australian exports tied up with China, this index is particularly relevant to the local economy.

With the CNY/USD peg being removed as well as the Yuan devaluation (as explained above) experts are confident these changes did add value to the country as well as a boost in support of a better economy. These changes did have a direct effect and impact on the Hang Seng Index. Political events have an equal role to play, with changes to the index having a direct effect on the political relationship between China and Australia. Even when global events are not in direct correlation to the HSI, they do influence index price dynamics. The best example is the announcement of Brexit that led to a1000 points drop in the Index.

Main HSI Trading FAQ

• What’s the best definition of the HSI?
  

  The HSI is the Hang Seng Index. It is the benchmark equity index in Hong Kong and is a capitalization weighted index of the 30 largest companies trading on the Hong Kong exchange. These 30 companies cover roughly 65% of the total market capitalization for the Hong Kong Exchange. The index has four subsectors – finance, industry, real estate investment trusts, and utilities. Because of the close ties between Hong Kong and mainland China there are many Chinese firms that are a part of the Hang Seng Index.

   
• How can I trade the HSI?
  

  The Hang Seng is one of the most widely quoted Asian indices, and with daily swings that are often greater than 1% it is an ideal vehicle for regular traders. Because the index trades from 9:30am to 4:00pm Hong Kong time it can be difficult for investors living in Europe and North America to trade the index, unless they are willing to keep unusual hours. It can be well worth the effort though, especially for those who are looking for greater exposure to Chinese companies.

   
• What moves the HSI?
  

  Because the Hang Seng Index is a collection of stocks it can often be influenced by larger macro trends and fundamentals, but it can also be influenced by technical levels as well. Due to the close ties between Hong Kong and China, and the large number of Chinese companies listed on the Hang Seng it is often Chinese economic developments that move the Hang Seng. Fluctuations in the value of the Chinese Yuan can also have an impact on the Hang Seng, and recently the trade disputes between the U.S. and China have also impacted the Hang Seng.

   

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