Hang Seng Index 

The Hang Seng Index is a benchmark for the Hong Kong stock exchange and is generally regarded as an indicator of overall economic performance in that region. Knowing more about the Hang Seng Index gives insights into local and international market dynamics. Its form, constituents, historical performance, and influence in global markets make it a relevant investment instrument to be used by investors willing to gain access to one of the most dynamic economies in Asia. Several aspects of the Hang Seng Index are covered in this article, which begins with its definition, constituents, historical performance, and impact on global markets. 

What is Hang Seng Index? 

A free-float market capitalisation-weighted index, the Hang Seng Index reflects the performance of the largest and most liquid stocks listed on the Hong Kong Stock Exchange, HKEx. Established in 1969, it plays a similar role in the Asian financial centre as the Dow Jones Industrial Average does in the United States, providing an important indicator of the mood of the markets and the economy’s health. Hang Seng Indexes Company Limited, the subsidiary of Hang Seng Bank, compiles and maintains the index. 

HSI contains 82 constituent stocks, comprising about 58% of the total market capitalisation of all listed companies on the HKEx. The index is calculated in real-time during trading hours, and changes in stock prices are reflected every two seconds. 

Understanding the Hang Seng Index 

The Hang Seng Index is structured in a stratified manner to reflect the economic landscape of Hong Kong. The four main sub-indices are as outlined: 

• Finance: It incorporates banks and financial institutions. 

• Utilities: Those companies that provide services such as electricity and water. 

• Properties: Real estate companies engaged in property development and management. 

• Commerce & Industry: This sector encompasses many industries, such as retail and manufacturing, and may include the technology sector. 

The index uses a free-float adjustment method. In other words, its calculation only includes traded shares. This prevents any single company from significantly increasing the index’s value. Additionally, to offset imbalances, individual component weighting is capped at 8%. 

Components of the Hang Seng Index  

In December 2023, the Hang Seng Index comprised 82 constituent stocks, amounting to about 65% of the total market capitalisation of all the listed companies on the HKEx. The stocks fall into four broad sectors as follows: 

• Finance: It represents big banks and financial institutions. This sector is significant in terms of the index. 

• Utilities: Companies providing essential services such as electricity and water fall under this category. 

• Sectors: The sector includes real estate companies that engage in development and property management 

• Commerce and Industry: The sector comprises companies cutting across various industries. These include retail companies, manufacturing companies, and electronic companies. 

The major constituents include international giants such as HSBC Holdings, Alibaba Group, Tencent Holdings, AIA Group, and China Construction Bank. Due to their high market capitalisations, these players significantly influence the index. 

Historical Performance of the Hang Seng Index  

Some benchmark milestones have characterised the historical performance of the Hang Seng Index since its inception: 

• In 1993, the HSI exceeded the 10,000-point mark for the first time 

• By December 2006, it crossed 20,000 points 

• The index reached an all-time high of 33,223.58 on January 26, 2018. 

• Milestones: The index stood at its lowest in history, 58.61 points, on August 31, 1967. It crossed the 10,000-point barrier for the first time in December 1993 and the 20,000-point barrier in December 2006. The highest index value was 33,223.58 points, achieved on January 26, 2018. 

• Annual Returns: Over the history of this index, the average annual return for the HSI has been around 19.2%. The highest annual return occurred in 1972, with an increase of 147.07%, while the lowest was recorded in 1974, when the decline reached as low as -60.54%. In recent years, especially in the decade of the 2010s, average annual returns steadied at about 3.7%. 

However, it has also witnessed significant declines. For example, its value dropped by nearly 30% during the global financial crisis from October 2007 to March 2008. So far, in December 2023, the index closed at around 17,047.39 points. 

Annual performance data depict a range of fluctuations due to several economic factors, such as China’s trade tensions with other countries, its domestic policies, and global conditions. 

Examples of the Hang Seng Index 

To give an example of how the Hang Seng Index goes about in global markets, look at how it responds to major news developments: 

• COVID-19 Pandemic: The HSI was volatile in early 2020 as investors reacted to uncertainties over the pandemic. It fell sharply but soon recovered as markets steadied. 

• US-China Trade Relations: Trade policy fluctuations have often influenced investor sentiment toward Chinese companies listed on the HSI. 

• HSBC Holdings: As the biggest bank in the world, HSBC affects the index significantly due to its large market capitalisation. Any fluctuation in HSBC’s stock price affects the general value of the index. 

• Alibaba Group: Alibaba Group is the largest e-commerce platform operated by a Chinese company. Any change in stock market performance can impact investors’ confidence and cause surges in both domestic and foreign markets. 

These examples underscore how external factors may, at times, impact not only local but also regional market trends. 

Frequently Asked Questions