The Hang Seng Index (HSI), one of the longest-standing and most influential stock price indices in the Hong Kong stock market, was launched on November 24, 1969. The index emphasizes inclusivity across all industries and the representativeness of companies within their respective sectors, aiming to fully reflect the overall picture of the Hong Kong stock market.
The Hang Seng Index Strongly Represents the Hong Kong Stock Market
Many investors compare the Hang Seng Index with the Hang Seng China Enterprises Index (HSCEI). Although both are typical broad-based indices for Hong Kong stocks, they differ significantly in their stock selection criteria. The HSCEI includes the largest and most actively traded mainland Chinese companies listed in Hong Kong, while the Hang Seng Index comprises the largest and most actively traded stocks listed in Hong Kong, serving as a key indicator of the overall performance of the Hong Kong stock market.
The Hang Seng Index exhibits a prominent large-cap style, with 31 constituent stocks each having a total market capitalization exceeding HKD 200 billion, collectively accounting for 81.2% of the index's weight. Although the number of constituent stocks in the Hang Seng Index represents only 3.2% of all listed stocks in Hong Kong, their total market capitalization and free-float market capitalization account for 61.5% and 72.1% of the respective totals. The index also demonstrates strong representativeness in financial metrics such as revenue and net profit attributable to shareholders.
Historical Changes in Sector Distribution and Weightings of the Hang Seng Index
A comparison of the sector distribution between the Hang Seng Index and the broader Hong Kong stock market reveals that their weightings and rankings are relatively similar. However, the Hang Seng Index has higher weightings in the financial and information technology sectors.
Looking back at history, the changes in the sector distribution and weightings of the Hang Seng Index serve as a historical mirror of the evolution of the Hong Kong stock market, effectively reflecting its overall trends during different historical phases. From 2015 to 2020, sectors representing "new economy" development, such as information technology and consumer goods, steadily increased their share in the Hang Seng Index. Meanwhile, the financial and real estate sectors, which accounted for over 50% of the index's weight before 2018, have now declined to 36%.
An analysis of the historical trajectory of the index's weightings also reveals a trend of compatibility: it not only includes long-standing industry leaders but also incorporates core assets from each era, which often represent emerging economic trends at the time.
Since 2016, the composition of the Hang Seng Index has been continuously adjusted. While maintaining the significant presence of large state-owned enterprises and financial institutions, the index has included heavyweight companies in the consumer and internet sectors (such as Alibaba, Xiaomi, and Meituan) as Chinese internet companies listed in the U.S. return to the Hong Kong market and local IPOs proliferate. These "new economy" companies boast market capitalizations comparable to those of traditional large state-owned enterprises.
This evolution in weightings reflects the Hang Seng Index's ability to adapt to the trends of the new economy while maintaining continuity in historically dominant sectors. It highlights the openness, diversity, and responsiveness to globalization of the Hong Kong stock market.
Backed by high-quality underlying assets, the Hang Seng Index achieved positive returns in 13 out of the 21 years from early 2003 to the end of 2023. Given the high correlation between the Hang Seng Index's performance and the U.S. Federal Reserve's monetary policy, the Hong Kong stock market often underperformed during periods of marginal tightening by the Fed. However, in the coming period, as overseas liquidity conditions marginally ease, the likelihood of the Hang Seng Index delivering positive returns is expected to increase.
