The Hang Seng Index is a basket of the 50 largest and most liquid Hong Kong stocks, freefloat-adjusted and weighted by market cap. The index is widely considered to be the best indicator of how large Hong Kong stocks are performing on a day-to-day basis.
The composition of the Hang Seng Index
As we mentioned, the Hang Seng Index consists of 50 large-cap HK stocks, which combine for about 60% of all HK market capitalization. The Hang Seng Index is weighted by “freefloat adjustment” for investability, and it’s capped at 10% to avoid a single stock dominating the index’s daily movements.
Only companies with a primary listing on the Main Board of the Stock Exchange of Hong Kong (SEHK) are eligible potential constituents. Mainland China enterprises that have an H-share listing in Hong Kong will be eligible for inclusion if they meet certain conditions.
The Hang Seng Index was launched on 24 Nov 1969 and backdated to 31 July 1964, with a base rate of 100.
As of 31 May. 2018, the 10 largest constituents and their weighting in the Hang Seng Index are:
- HSBC 9.91%
- Tencent 9.18%
- AIA 9.15%
- CCB 8.01%
- ICBC 5.05%
- China Mobile 4.52%
- Ping An 4.22%
- Bank of China 3.43%
- HKEX 3.15%
- CKH Holding 2.52%
Source: Hang Seng Indexes Company Limited
Industry Weighting of the Hang Seng Index
In 1985, four sub-indices were established in order to make the index clearer, and to classify constituent stocks into four distinct sectors: Finance, Utilities, Properties, and Commerce & Industry.
These new industry classifications are more frequently used and more compatible with international standards. From the chart below, we can see that the industry weighting in the Hang Seng Index is highly tilted towards the Financial sector.
How to invest in all Hang Seng Index Stocks
If you want to invest in the Hang Seng Index, it’s generally not practical to actually purchase shares of all 50 stocks. However, you can get exposure to all 50 stocks, in their corresponding weights, by investing in a Hang Seng index fund.
Tracker Fund(2800.HK) has been Hong Kong’s most actively traded ETF, and thus the closest match to the index’s actual performance, with HK$80.4 billion in total assets under management. Lower levels of liquidity lead to greater bid-ask spreads, larger discrepancies between net asset value and the value of the underlying securities. Its daily average turnover of HK$1.49 billion year to date is the highest among more than 170 ETFs offered in the city, according to data from Hong Kong Exchanges and Clearing.