Hong Kong is one of the most important financial centers in the world. Despite the political changes that have taken place in recent years, it remains a unique place. In this article, we analyze the 4 most important stock market indices in Hong Kong.
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Introduction
Hong Kong is a special administrative region, but part of China, which controls the most fundamental aspects of how the territory is run. It is a jurisdiction of about 7.5 million people.
When it comes to its economic development, Hong Kong is one of the richest places in Asia. Its GDP per capita is similar to that of developed countries in Western Europe, and much higher than the average for China.
This is due to the liberal economic policies that have characterized Hong Kong since the end of World War II. It should be noted, however, that Hong Kong’s dominance as Asia’s major financial centre has been eroding in favour of Singapore over the last decade.
If we look at its stock market, however, we will realize that the Hong Kong Stock Exchange is one of the largest in the world. This is because many Chinese companies, whose business activities take place both in continental China and the rest of the world, are also listed in Hong Kong.
For this reason, international investors have always had a strong interest in Hong Kong stock indices. Traditionally, Japan’s Nikkei 225 and Hong Kong’s Hang Seng have been the most popular Asian indices.
It should be noted that the Chinese stock market can be highly complex, since several types of shares are available. If you want to learn about the types of Chinese stocks, I suggest you take a look at this section: Types of Shares in China.
For those who want to invest passively in the stocks listed on the Hong Kong Stock Exchange, or simply want to analyze their historical performance, we will analyze the most important stock market indices of the territory.
Hang Seng (HSI)
The Hang Seng is the most famous stock market index of the Hong Kong Stock Exchange and therefore of China. It was introduced in 1969 and is made up of the 50 largest companies listed in Hong Kong.
These stocks fall in the categories of “Type H”, “Red chip” and “P chip”. The Hang Seng index is owned by Hang Seng Bank, which is a subsidiary of London-based British bank HSBC.
Most of the commercial activity of the companies included in the Hang Seng takes place in the rest of China and around the world. Hong Kong actually represents a very small fraction of its turnover.
Within the index, stocks are weighted based on their free-float-adjusted market capitalization. Hence, large companies tend to have a larger weight. Some of these large corporations include Alibaba, Tencent, PetroChina, Bank of China, China Construction Bank and HSBC.
The Hang Seng is officially published in Hong Kong dollars (HKD), a currency that is pegged to the US dollar. But we can find versions of the index in other currencies.
You can find more information about the Hang Seng index on its official website.
FTSE China 50
The FTSE China 50 is an index calculated by the British company FTSE Russell, a subsidiary of the London Stock Exchange. It is made up of 50 of the largest companies listed on the Hong Kong Stock Exchange, making it very similar to the Hang Seng.
Within the FTSE China 50, stocks are weighted based on their market capitalization adjusted for free float. And these are mainly “Type H” shares, although we can find some stocks in the “Red Chip” and “P chip” categories. Most of them are denominated in Hong Kong dollars.
Some of the most important holdings within the FTSE China 50 are Tencent, JD.com and China Construction Bank.
If you are looking to invest only in the largest and most internationalized companies in China, both the FTSE China 50 and the Hang Seng are good alternatives when choosing an ETF.
More details about this index can be found on the FTSE Russell website.
MSCI Hong Kong
The MSCI Hong Kong is a stock market index calculated by MSCI. It is composed of all Hong Kong companies that are part of the global index of developed countries MSCI World.
The number of stocks within it is not constant, but fluctuates over time depending on how many companies meet the criteria necessary to be included in the global index. Under normal circumstances, the MSCI Hong Kong has between 30-35 companies in it.
Something very interesting about the MSCI Hong Kong is that these are companies domiciled in Hong Kong, which carry out a large part of their economic activity in Hong Kong itself. In other words, we are not talking about Chinese companies that are simply listed on the Hong Kong Stock Exchange.
In fact, MSCI adds these companies to its global index of developed countries, while Chinese companies are part of the index for emerging countries.
Because Hong Kong’s economy is heavily dependent on the financial sector and real estate activity, these two sectors account for approximately 75% of the market capitalization of the MSCI Hong Kong. In fact, an interesting fact is that one of the most important companies in the index is the Hong Kong Stock Exchange itself.
If you want to learn more about the MSCI Hong Kong, you can visit MSCI´s website.
FTSE EPRA Nareit Hong Kong
Finally, the FTSE EPRA Nareit Hong Kong is an excellent option for those who want to invest in Hong Kong real estate, one of the most fascinating and expensive markets in the world.
This index is composed of real estate companies whose business is about acquiring properties and renting them out in order to generate recurring income. These real estate properties can be residential or commercial assets, such as offices, hotels and warehouses. Many of these companies trade in the form of REITs.
Thus, the FTSE EPRA Nareit Hong Kong is composed of all Hong Kong real estate companies that are part of the FTSE EPRA Nareit Global real estate index.
If you want to read more details about it, you can use this link to the website of FTSE Russell, the company that publishes it.
I hope you found this article about Hong Kong stock market indexes useful. If you want to learn about the stock market indexes of the other major financial hub in Asia, check out this link:
Singapore’s Top 2 Stock Market Indexes
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