What is the Hang Seng Index?

The Hang Seng Index is a measure of the performance of the biggest companies on the Hong Kong Stock Exchange. This index is like the FTSE 100 in London and the S&P 500 in New York. The Hang Seng Index follows 60 carefully chosen companies. It is the most widely used trading indicator in the area.

What is Hang Seng?

The Hang Seng Index (HSI) is an index of the Hong Kong Stock Exchange’s most liquid and largest companies by market capitalization. It shows about 60% of all trades on one of Asia’s biggest stock exchanges.

Ho Xing Hang, Chairman of Hang Seng Bank, conceived the idea of creating an index of the same name as the Hong Kong equivalent of the US Dow Jones Industrial Average (DJIA) — a stock indicator of the 30 largest US companies. Together with Hang Seng director Li Ku-wei, he commissioned Hang Seng head of research Stanley Kwan to create the HSI, which officially launched on November 24, 1969, with a base of 100 points.

Types of Hong Kong Stock Exchange shares

There are four types of shares on the Hong Kong Stock Exchange:

• A-shares

A-shares are shares that are worth yuan and are traded on the Shanghai Stock Exchange, the Shenzhen Stock Exchange, and the National Stock and Quotation Exchange. They are also called domestic shares. They are different from B-shares, which are traded in foreign currencies in Shanghai and Shenzhen, and H-shares, which are traded on the Hong Kong Stock Exchange and are worth Hong Kong dollars (HKEX).

Foreigners can’t buy A-shares directly because the Chinese government doesn’t let them. However, foreign investment in these companies is still permitted through a regulated structure: some institutional investors can obtain Qualified Foreign Institutional Investors (QFII) certification, which will give them access to A-shares. At the moment, only a few big foreign companies have QFII status and can buy and sell Chinese A shares.

• H-shares

H-shares are shares of companies that are registered in mainland China and are traded on the Hong Kong Stock Exchange. Many enterprises list their shares simultaneously on the Hong Kong Stock Exchange and on one of the Chinese stock exchanges (Shanghai or Shenzhen) – such companies are called A + H.

Shares H and A of the same company usually have different prices. Most of the time, A-shares are more expensive than H-shares because the PRC government doesn’t let its citizens invest in foreign companies, while foreigners can’t invest in A-share markets.

• Red apples (red chips)

Red Chips are shares of Mainland Chinese companies that are registered outside of the PRC and are listed in Hong Kong. These businesses are based in China and are controlled directly or indirectly by the central, provincial, or municipal governments of the PRC. However, they are traded on the Hong Kong Stock Exchange so that foreigners can invest in them.

Alex Tang, a Hong Kong economist, came up with the term “red chips” in 1992 by changing the name of the shares of large, liquid, and financially stable companies from “blue chips,” which was the traditional name, to “red chips,” which was a reference to the socialist ideology of the PRC.

• P-chips

P-chips are shares of Chinese companies that are traded on the Hong Kong Stock Exchange. These companies are registered offshore (in the Cayman, Bermuda, and British Virgin Islands) and operate in mainland China under the control of Chinese businessmen from the private sector.

The Hang Seng Index and How It Works

Like other indexes, the main Hang Seng index is made up of stocks that are “weighted” based on how much money they are worth on the market. The maximum share is capped at 8% to make sure that big changes in one stock don’t have a bigger effect on the rest of the index than they should.

In January 1985, Hang Seng came out with four sub-indices that put the stocks it tracked into different groups.

• Finance
• Public utilities
• Real estate
• Business and trade

Hang Seng Indexes, a subsidiary of Hang Seng Bank, which is one of the largest banks in Hong Kong by market capitalization, is in charge of making and keeping track of the index right now. The company is in charge of making the Hang Seng Index and a number of other stock indexes, as well as publishing them and managing them.