How Overlapping Are the Constituent Stocks?

Looking at the top 10 weighted stocks, the three indexes show a high degree of overlap. Compared to the Hang Seng Index, the Hang Seng China Enterprises Index shares 8 overlapping stocks, while the CSI Hong Kong Stock Connect China 100 Index shares 7. These include leading companies in the internet sector, such as Tencent, Alibaba, Meituan, and Xiaomi, as well as top players in the financial sector, such as China Construction Bank and Industrial and Commercial Bank of China. Additionally, the Hang Seng Index includes HSBC Holdings and AIA as extra constituents.

Between the Hang Seng China Enterprises Index and the CSI Hong Kong Stock Connect China 100 Index, there is only one difference in their top 10 weighted stocks: the former does not include Ping An Insurance, while the latter excludes Alibaba.

Given such high similarity in the top constituents, does this trend extend to the rest of the stocks?

A comparison of all constituent stocks across the three indexes reveals that among the 82 constituents of the Hang Seng Index, 43 overlap with the Hang Seng China Enterprises Index, and 50 are also included in the CSI Hong Kong Stock Connect China 100 Index. Meanwhile, 45 of the 50 constituent stocks in the Hang Seng China Enterprises Index are the same as those in the CSI Hong Kong Stock Connect China 100 Index.

In terms of concentration, since the CSI Hong Kong Stock Connect China 100 Index and the Hang Seng Index include a relatively larger number of constituents, individual stock concentration is slightly lower. The top 10 weighted stocks account for about 50% of the total, with roughly three-quarters of the constituents having a weight of less than 1%. On the other hand, the Hang Seng China Enterprises Index has fewer constituents, resulting in relatively higher concentration—its top 10 weighted stocks make up 60%, and half of the constituents have a weight above 1%.

Given that mainland Chinese companies account for over 70% of the total market capitalization in the Hong Kong stock market, and many listed companies primarily operate in the mainland market, the fundamental indicators of the Hang Seng Index, Hang Seng China Enterprises Index, and CSI Hong Kong Stock Connect China 100 Index are closely tied to the economic growth trends of mainland China.

Investors should carefully assess their risk tolerance based on factors such as investment objectives, time horizon, experience, and financial situation. After understanding the basic characteristics and valuation levels of these indexes, they can make informed investment decisions.