The Hang Seng Index consists of the 50 largest companies in the Hong Kong stock market by market capitalization. The 50 stocks are divided into four categories: Finance, Utilities, Real Estate, Retail, and Industrial. The Hang Seng Index is a major stock market benchmark for Hong Kong-based stocks but also includes a wide range of Chinese-based stocks. Want to learn about Hang Seng Index? Cherish your knowledge about Hand Seng Index, its price factors, its components, and how to trade in Hang Seng Index through this comprehensive guide.
What is Hang Seng Index?
The Hang Seng Index currently represents around 50 of the most financially sound companies on the Hong Kong Stock Exchange (HKSE) and is an important indicator of the strength of Asian financial markets. The Hang Seng Index was created in 1969 with a value of 100 and is edited, issued, and managed by the Hang Seng Index Company, a subsidiary of the Hang Seng Bank. This index is similar to the UK FTSE 100 or German DAX, and weights companies based on their market capitalization, unlike Dow Jones, which lists companies by price. The maximum weight of a company in the Hang Seng index is 10%.
Also Read: How to Invest in S&P 500 Index
Four Categories of Hang Seng Index
The components of the Hang Seng Index are divided into financial, real estate, utility, retail, and industrial categories. The most important components of the weighted index are Chinese companies such as Tencent and Alibaba. Notable companies included in the index include Hong Kong-based Hong Kong-based insurer HSBC and pan-Asian insurer AIA Group.
The subcategories are in turn divided into a total of 12 subcategories. This shows the sectoral composition of the Hang Seng Index as of July 6, 2021, and is accurate to the nearest percentage point (source, Hang Seng Index).
How do companies enter in Hang Seng Index?
The Hang Seng 50 Index is reviewed quarterly and companies are permitted or excluded through external advisory and analysis. To be selected, companies must meet criteria based on representativeness, market capitalization, sales, and financial performance, and have at least 3 months of trading history on the Hong Kong Stock Exchange.
How is Hang Seng Index calculated?
Hang Seng 50 is calculated every 2 seconds according to an equation adjusted for free flow, taking into account the current price, closing price, and outstanding shares during Hong Kong Stock Exchange trading hours. It also uses the adjusted free-flow factor (FAF) and compound interest factor (CF), each between 0 and 1, adjusted quarterly.
What does Hang Seng Index price depict?
The Hang Seng 50 price indicates whether the stock price of a company included in the index is rising or falling. When the Hang Seng 50 price rises, it means that a specific company or group of companies is making a profit, and it is reflected in the price of the entire index. In contrast, falling prices in the Hang Seng 50 Index mean that companies in the index are experiencing price declines. Because Hang Seng’s 50 rankings are based on weighting calculations that focus on market capitalization, companies with high weights often find that stock price movements have an unduly large effect on the broader index.
Factors affect the price movement of Hang Seng Index
Like other stock indices, Hang Seng’s price is influenced by many fundamental and technological factors related to the performance of the Hong Kong/China economy, as well as international influences.
However, since most of the companies included in the index are based in mainland China, news streams and economic data from the People’s Republic of China tend to have a greater impact on the index than events, especially those based in Hong Kong. US-China relations, the strength of the Hong Kong dollar, and economic data could have a significant impact on prices. This is the most important thing to consider when trading the Hang Seng index. Following are the few factors that determine the prices of the index-
The relationship between the US and China could be an important factor in the Hang Seng Index. The tension between the US and China could put pressure on the market. In 2018, for example, the Hang Seng index plunged as concerns over a slow pace in a trade deal between the US and China made speculators uneasy. Events like this make it worthwhile for traders to closely monitor how U.S.-China relations develop and how they can affect trade between regions as relevant news emerges.
HK Dollar Strength
The Hong Kong Dollar (HKD) could be an indicator of a possible move in the Hang Seng Index. For example, HKD is pegged to USD in the range of 7.75 to 7.85. To control bank liquidity and regulate capital inflows and outflows, the Hong Kong Monetary Authority, the central bank of Hong Kong, buys and sells currencies at all limits.
When it comes to economic data, Hang Seng index traders need to track China’s GDP figures and trade balance statistics, and industrial production indicators such as PMI. The Hang Seng Index for June 2021 gave an unusual idea of this figure to 29,468, up 1.1% after data from the previous month showed expansion in Chinese manufacturing.
What is the expected return on Hang Seng Index?
Over the past decade, the Hang Seng Index has returned an average annual return of 2.8%. Hang Seng’s average return is a managed fund created in exchange for one year with investors.
How to invest in Hang Seng Index?
You can easily invest in the Hang Seng Index UK by following these steps-
- Choose the broker – First, choose the broker you want to invest in the UK Hang Seng Index – we recommend an FCA-regulated broker like eToro where you can trade with 0% commission.
- Account Registration – Open an account with eToro or your chosen broker. You only need to provide your ID (passport or driver’s license), proof of address (electricity bill or bank statement), and some personal information.
- Deposit the funds – Deposit a small amount of money into the account you just created. eToro allows you to quickly and easily deposit via debit/credit card, e-wallet, or bank transfer.
- Invest & Trade in Hang Seng Index UK – After depositing the funds you can instantly start trading; now you have to find the stock that you want to invest in and also provide the amount that you want to invest. Once it is done you can click on the open position to initiate the trade.
What are the ways to trade the Hong Seng Index?
There are several ways to trade the Hang Seng Index. You can invest in Hong Seng Index UK via CFDs, Futures, Options, and ETFs. All of these tools allow you to invest in all 50 companies from a single location.
Hang Seng Index CFDs
A Contract for Difference (CFD) is the contract that is created after the underlying market index for future price. Since you will not own the asset, you can guess whether the index will rise or fall in value.
Hang Seng Index Futures
A futures contract is an exchange of an asset at a specific price on a specific expiration date. Unlike most futures, Hang Seng contracts do not have an underlying physical asset to trade. This is because an index is just a number that represents a group of stocks.
Hang Seng Index Options
Hang Seng options give you the right, but not the obligation, to buy or sell an index on a specific date and at a specific price. When options allow you to trade Hang Seng indices, trade them through CFDs.
Hang Seng Index Stocks and ETFs
If possible, you can also trade the Hang Seng index through an ETF or investment vehicle with a group of shares (in this case the shares of the index component). Alternatively, you can trade Hang Seng index stocks individually, allowing you to focus on specific areas of interest.
How to choose the best broker?
Finding the right broker is the first and most important step to investing in the UK Hang Seng Index. To make this step easier, we have reviewed two of the best investment apps and brokers in the UK for trading Hang Seng indices.
The most recommended broker for investing in Hang Seng Index UK is eToro. With over 20 million users worldwide, eToro is one of the best brokers in the world. Used by professional and non-professional traders, they offer a variety of trading instruments such as stocks, ETFs, indices, and commodities. The best thing about eToro is that this broker charges 0% commission on each trade. This means that you can purchase stocks within the Hang Seng Index or purchase the Hang Seng Index directly from the UK without paying any fees. eToro charges a small margin, but this is a common practice among UK brokers and is very affordable.
eToro is regulated by the UK Financial Conduct Authority, which ensures a safe investment environment. The broker requires a minimum deposit of 200 USD and can be paid by credit or debit card or electronic wallets such as PayPal, Neteller, or Skrill. eToro’s customer service team operates 24 hours a day, 7 days a week.
Libertex is a UK-based CFD broker serving over 2.2 million clients. When you trade in CFDs you are not needed to own the asset on which the contract is created. The advantage of this type of trading is that leverage allows you to increase your effective position in the Hang Seng index without having to invest more money in advance.
Libertex differs from other UK CFD Brokers in that it charges a fixed fee for trading rather than variable spreads. Libertex trading fees are very low, so if you want to pay as little as possible to invest in the UK Hang Seng index, this broker can be a good choice. You can deposit the funds through several payment options such as bank transfers, debit/credit cards, and e-wallets. The broker is approved and regulated by CySEC.
How to research before investing in Hang Seng Index?
It is necessary to do complete research before investing in any index. Before investing in any index gather all the market information. First, get the answers to all these questions before moving ahead.
What is the Hang Seng Index?
The Hang Seng Index is an index of Hong Kong’s 50 largest companies by market capitalization. It serves as a leading indicator of the health and performance of Hong Kong’s financial markets. The Hang Seng Index was established in 1969 and comprises companies from various industries and sectors such as banks (HSBC), real estate (Sino Land Company), utilities (Hong Kong and China gas companies), etc. More recently, Chinese tech giants such as Tencent and Alibaba have joined.
Is the Hang Seng Index a good investment?
Hong Kong is one of Asia’s major economies and a major entry point for British investors to invest in Chinese stocks. World leaders in the banking sector, such as the Hong Kong and Shanghai Banking Corporation (HSBC), call the Hong Kong Stock Exchange home. Chinese companies such as Alibaba and Tencent were also listed in Hong Kong and included in the Hang Seng Index.
How to make money by investing in Hang Seng Index?
There are several ways to make money by investing in Hang Seng Index, depending on the time, money, and effort you want to invest. If you decide to invest and forget about it, it is best to invest passively in the Hang Seng Index. In this case, you can invest in the Hang Seng Index Tracker Fund. They are automatically managed on your behalf by professional fund managers.
What are the investment strategies for Hang Seng Index?
There are so many strategies that can be used for investing in Hang Seng Index. We have picked the two best strategies- Buy and hold strategy and dollar-cost averaging.
Buy and Hold Strategy
Long-term investment strategies tend to be the most effective strategies concerning the Hang Seng Index. In this way, you can invest a long-term lump sum and get a good return.
Dollar-Cost Averaging strategy
We recommend using the average cost in dollars. This means that you only invest €100 or €200 per month, regardless of whether the price is high or low. Over time, you will get an average entry price that will offset these ups and downs.
How to trade Hong Seng Index via eToro?
Step 1: Open an eToro Account
First, go to the eToro Investments website or app and click “Sign up now”. Then a screen like a picture below will appear. Enter your personal information such as name and email address and click “Create Account”.
Step 2: Verify the identity
As eToro is an FCA-regulated broker, you need to verify your identity address. Upload a copy of your ID (driver’s license or passport) and proof of address (copies of utility bills or bank statements).
Step 3: Deposit the funds
Fund your account to invest in the Hang Seng Index. You can pay by debit card, credit card, e-wallet (PayPal, Neteller, or Skrill), or bank transfer. The minimum fund requirement is $200.
Step 4: Find Hang Seng Index Stocks
Search for the Hang Seng indices or individual stocks you want to add to your portfolio.
Step 5: Start Trade
Finally, trade on eToro. Just click the “Trade” button as shown in the image below. You can then enter the amount you want to invest and click “Open Trade”.
The Hang Seng Index can be a good investment if you want to expose yourself to the Asian stock market. Although the Hang Seng index may be riskier compared to the US and European market indexes, it provides exposure to fast-growing stocks in China and other Asian regions. Although indirectly, you can invest in the UK Hang Seng index through a combination of ETFs, mutual funds, or index funds, or you can trade value through derivatives using the methods described above.
Frequently Asked Questions
What is Hong Seng Index?
The Hang Seng Index is an index of Hong Kong’s 50 largest companies by market capitalization. It serves as a leading indicator of the health and performance of Hong Kong’s financial markets.
Can I invest in Hang Seng Index in the UK?
Yes, you can invest in the UK Hang Seng index through a combination of ETFs, mutual funds, or index funds, or you can trade value through derivatives using the methods described above.
What are the respective hours for trading Hang Seng Index?
Hang Seng Stocks can be traded from 9:30 am to 4:00 pm and from 1 pm to 4 pm Monday to Friday.
Why invest in the Hang Seng Index?
Hang Seng can also introduce the biggest company in China. Hang Seng is very volatile, making it popular with some investors.
How has the coronavirus affected the Hang Seng index?
Like most stock markets around the world, Hang Seng was hit hard in early March when the coronavirus pandemic began. It has seen a strong recovery since then but has not yet returned to pre-pandemic levels.
How to invest in Hang Seng?
The easiest way to invest in the Hang Seng index is to invest in an exchange-traded fund (ETF). An ETF is a set of stocks created to reflect the behavior of an underlying index like Hang Seng.