All You Need to Know About the Hang Seng Index (HSI) 

The Hang Seng Index, commonly referred to as the HSI, is a significant stock market index that monitors the performance of the largest and most liquid companies listed on the Hong Kong Stock Exchange (HKEX). 

If you are interested in investing in the HSI, this article outlines the performance trends of the HSI, provides an outlook on its future trajectory, and equips you with the knowledge you need to make informed investment decisions. 

Read on to learn more about one of Asia’s leading stock market indices. 

Key Points 

• The Hang Seng Index (HSI) was introduced on November 24, 1969, and has become a key indicator of Hong Kong’s stock market performance. It is a free float-adjusted market-capitalisation-weighted stock-market index, tracking 82 constituent companies that represent approximately 65% of the Hong Kong Stock Exchange’s total capitalisation. 

• The HSI is divided into four subindices: Commerce and Industry, Finance, Utilities, and Properties. It includes top companies like Tencent and Alibaba. Trading hours are from 9:30 am to 12:00 pm and 1:00 pm to 4:00 pm (GMT +8), with the exchange closed on weekends and national holidays. 

• Trading the HSI offers exposure to leading Chinese and global companies, diversification across sectors and regions, and various trading instruments like futures and options. Its wide market representation and sensitivity to market developments mean a variety of trading strategies can prove viable, such as trend following and news trading.  

What is the Hang Seng Index? ^[1] 

The Hang Seng Index was introduced on November 24, 1969, and has since become a key indicator of the economic health of Hong Kong. Currently, it is owned and managed by Hang Seng Indexes Company Limited, a wholly-owned subsidiary of Hang Seng Bank. 

The HSI is a free float-adjusted market-capitalisation-weighted stock-market-index. This means that it is calculated based on the market capitalisation of each company, in turn derived excluding locked-in shares such as those held by insiders, promoters, and governments. 

The HSI comprises 82 constituent companies, which represent approximately 65% of the total capitalisation of the Hong Kong Stock Exchange. The maximum percentage of relative weighting of any single security is capped at 8% to prevent the balance of the index form becoming skewed. 

As the primary stock market index in Hong Kong, the HSI holds a prominent position in the financial landscape of the region and is generally regarded as a barometer for Asian markets.  

Components and Trading Hours 

Divided into four subindices – Commerce and Industry, Finance, Utilities, and Properties – the Hang Seng components represent the largest and most influential companies in Hong Kong. 

At the time of writing, here are the top 10 companies in the HSI by market capitalisation ^[2]: 

Company Name	Market Capitalisation
Tencent Holdings Ltd	$353.93B
Industrial & Commercial Bank of China Ltd	$226.49B
China Mobile Ltd	$185.54B
Alibaba Group Holding Limited	$184.03B
PetroChina Company Limited	$182.61B
HSBC Holdings plc	$155.80B
Bank of China Ltd	$151.64B
China Construction Bank Corp	$150.20B
China Merchants Bank Co Ltd	$98.57B
AIA Group Ltd	$94.91B

Hang Seng Index (HSI) Trading Hours ^[3] 

Morning Session: 9:30 am – 12:00 pm (GMT +8) 

Afternoon Session: 1:00 pm – 4:00 pm (GMT +8) 

The exchange is closed on Saturdays, Sundays and National holidays. 

Why Trade HSI? 

Trading the Hang Seng Index is a popular choice for several reasons: 

1. Representation of large Chinese companies 

The HSI tracks the performance of many of China’s largest companies, such as the Industrial and Commercial Bank of China (ICBC) and Sinopec, as well as a number of big global and regional players like Alibaba. This provides traders with exposure to these significant market players. 

2. Diversification across regions 

Trading the HSI also gives traders exposure to the Hong Kong and Chinese markets, allowing portfolio diversification on a regional basis. This can be a good way to potentially hedge against economic instability in other parts of the world.  

3. Access to multiple sectors 

The four sub-indexes, Commerce and Industry, Finance, Utilities, and Properties, allows traders to gain exposure to a variety of sectors in the Hong Kong market while only trading one product. Diversifying with stocks that have varying correlations helps mitigate the impact of market volatility on the overall portfolio performance. 

Diversify Your Portfolio with HSI 

The Hang Seng Index (HSI) is a powerful product for traders looking to diversify their portfolios and implement strategic trading. Its diverse composition and dynamic nature offer several advantages. 

The HSI includes sectors such as finance, real estate, technology, and consumer goods, providing sectoral diversity that mitigates the risks of investing in a single industry. For traders focused on Western markets, the HSI offers geographic diversification, reducing the impact of localised economic downturns.  

Moreover, the index includes globally influential companies like HSBC and Tencent, allowing traders to benefit from these major players’ global reach. 

The HSI is also useful for hedging risks in other parts of a portfolio and is available through various derivative instruments like futures and options. These instruments enable traders to implement complex strategies, providing flexibility in managing risk and returns.  

Additionally, the HSI is a barometer of investor sentiment in Asia, helping traders gauge market mood and make strategic decisions. 

Incorporating the Hang Seng Index into a trading toolkit allows traders to achieve greater diversification, manage risk effectively, and capitalise on a wide range of strategic opportunities, making it a versatile and valuable instrument for investment strategies. 

Historical Performance of the Hang Seng Index ^[4] 

The Hang Seng Index has seen periods of both increase and decrease over its history. While there have been times of steady growth, there have also been periods of decline due to various factors such as economic recessions, financial crises, and other global events.  

Here are some key moments of the Hang Seng Index historical performance: 

Asian Financial Crisis (1997-1998) 

The Asian financial crisis of 1997 led to a sharp 30.74% decline in the Hang Seng Index, which plummeted to a low of 6,850.60 points in October of that year. This downturn was driven by widespread currency devaluations and financial instability across the region. 

Dot-com Bubble (2000-2002) 

During the dot-com bubble burst, the HSI plummeted by 67% before gradually recovering. 

SARS Epidemic (2003) 

The outbreak of the SARS epidemic led to a 16.66% drop in the HSI, reaching a low of 8,840.68 points. 

Global Financial Crisis (2008) 

The HSI experienced a significant 48.27% decrease, hitting a low of 11,015.84 points. 

Political Unrest (2019) 

Political unrest in Hong Kong took a toll on the index, causing a 15.42% drop and reaching a low of 25,281.30 points. 

Recent Trends in Hang Seng Index  

As of August 6, 2024, the Hang Seng Index is at 16,612, marking a year-over-year decline of about 14.94%. After hitting a three-month low, Hong Kong stocks saw a rebound as the global market sell-off moderated.  

The Hang Seng Index has fallen 15% from its peak in May, reflecting ongoing challenges in China’s economy, particularly due to a sustained downturn in the property sector. Despite this, the index is trading at 8.2 times expected earnings for the year, making it the second least expensive among major global markets, according to Bloomberg ^[5]. 

Market Influences on Hang Seng Index 

1. Economic Indicators 

Economic indicators such as GDP growth, inflation rates, and changes in monetary policy by the Hong Kong Monetary Authority can influence investor sentiment and, consequently, the index. For instance, China’s PMI figures can heavily influence the Hang Seng Index, reflecting the overall health of the Chinese economy. 

2. Global Market Sentiment 

The Hang Seng Index is closely correlated with other major stock markets around the world. Changes in the global economic and political events, such as trade wars, geopolitical tensions, and pandemics can have a significant impact on the HSI’s performance. Market sentiment and expectations play a crucial role in determining the direction of the HSI. 

3. Industry Trends 

The Hang Seng Index is structured in four sub-sectors, reflecting the economic pulse of Hong Kong and is closely watched as an indicator for Asian markets. A more balanced coverage in different industry groups will lead to inclusion of more ‘new economy’ constituents, mainly in technology and healthcare firms, uplifting the overall earnings growth of the index. The financial industry’s response to the growing demand for ESG investments has led to the emergence of Hang Seng Index funds with a specific focus on ESG criteria. 

These Hang Seng market factors together contribute to the performance of the Hang Seng Index.  

Economic and Geopolitical Factors 

The HSI is a market capitalisation-weighted index of the largest companies trading on the Hong Kong Exchange, with many operating globally. Changes in global economic conditions and geopolitical events, such as GDP growth or political tensions, can significantly impact these companies’ profitability, leading to fluctuations in the HSI. 

Understanding these HSI economic indicators is crucial for investors seeking to navigate the market effectively. 

GDP growth is a key economic indicator that influences the Hang Seng Index. Positive GDP growth in Hong Kong often signals a healthy economy, which can lead to a rise in the HSI. For instance, surging exports in 2021 indicated a growth turnaround, potentially signalling a stock-market boom ^[6]. 

Interest rates set by central banks also impact the HSI. Higher interest rates can make borrowing more expensive, potentially slowing economic growth and negatively affecting the HSI. For example, rising local interest rates following US Federal Reserve hikes have made residential properties less attractive investments, causing downward pressure on the Index. ^[7]. 

Geopolitical events, such as tensions between the United States and China, can create market uncertainty and increase HSI volatility. These tensions have driven down trade shares between the two economies, impacting the HSI due to its role as the prime benchmark of the economic health of both Hong Kong and China ^[8]. 

Effective Trading Strategies for Hang Seng Index 

The Hang Seng Index’s dynamic nature, categorised by volatility, news sensitivity, and sectoral influence, makes it ideal for diverse trading strategies. 

Here are some strategies for you to consider when trading the HSI: 

1. Trend Following 

The HSI often exhibits strong trends influenced by macroeconomic factors, and a trend-following strategy can help traders capitalise on these movements. 
 
By identifying the overall trend and taking relevant trades , traders can potentially profit from sustained upward or downward movements in the index. 
 
Traders can use technical indicators like moving averages, trendlines, and the Relative Strength Index (RSI) to help identify market trends and incoming trend reversals. 

2. Swing Trading 

Swing trading is about capturing short- to medium-term gains over a few days to several weeks by taking advantage of price fluctuations within a broader trend. 
 
The Hang Seng Index is well-suited for swing trading because its cycles tend to be influenced by economic data, corporate earnings reports, and geopolitical events, making its movements more predictable. 
 
Traders can hold positions for days or weeks, depending on the size of the swing they want to profit from. However, this strategy can be risky if sudden market events occur. 

3. Day Trading 

Day traders aim to profit from meaningful price movements that happen within a single trading day. Due to the HSI’s high liquidity and volatility, day traders can capitalise on multiple trading opportunities arising from short-term price fluctuations, making it an attractive index for day trading. 
 
In practice, day trading requires positions to be closed by the end of the trading day, eliminating risks associated with holding positions overnight. For this reason, day trading the HSI is likely less risky than strategies that keep positions open in between trading days. The latter can be especially risky during periods of high market volatility, such as during earnings announcements.  

4. News Trading 

The HSI is sensitive to market news, especially those related to the Hong Kong or Chinese economy, trade relations, and local political developments.  
 
Given the index’s responsiveness to economic indicators, geopolitical events, and corporate announcements, news trading allows traders to capitalise on rapid price movements triggered by breaking news. 
 
By staying informed and reacting swiftly to market-moving events, traders can exploit short-term volatility and potentially generate substantial profits. 

Read more about the popular strategies for trading indices. 

Risk Management in Hang Seng Trading 

Due to its inherent volatility and sensitivity to various market factors, it is essential for traders to understand risk management in HSI trading. 

Being a prime stock market index, the HSI may experience significant price swings, which can lead to both substantial gains and losses in a short period. 

To potentially safeguard investments, traders can consider doing the following: 
 
1. Set Stop-Loss orders 

Implementing stop-loss orders allows you to automatically exit positions at predetermined price levels. This helps limit potential losses and prevents emotional decision-making during volatile market conditions.  

2. Manage position sizes 

Determining the appropriate position size for each trade based on your risk tolerance and account size. Avoid risking too much capital on a single trade, and adhere to strict position-sizing rules to prevent significant losses.  

3. Use Risk-Reward ratios 

Evaluate potential trades based on risk-reward ratios to ensure that potential rewards outweigh potential risks. Aim for trades with favourable risk-reward profiles to potentially enhance the probability of long-term success. 

4. Monitor and review your trades 

Regularly review your trading performance and adjust your risk management approach as needed. Learn from both successful and unsuccessful trades to refine your strategy over time. 

How to Trade the Hang Seng Index 

Like all market indices, the HSI cannot be traded directly. However, traders may choose from several financial instruments to trade the Hang Seng Index or include it in your portfolio. 

Futures and options 

You can trade the Hang Seng Index indirectly through a variety of financial derivatives such as futures and options. This method allows you to speculate on the price movement of the index from a single position.  

Hang Seng-related ETFs 

Exchange-Traded Funds (ETFs) offer investors a simple and easy solution to getting exposure to the Hang Seng Index. This is achieved by such funds mimicking the same basket of securities that make up the HSI, effectively tracking the index.  Some of the ETFs that track the Hang Seng Index include: 

• iShares MSCI Hong Kong ETF (EWH) 

• Lion-OCBC Securities China Leaders ETF. 

Indices Contract for Differences (CFDs) 

Index contract for differences (CFDs) is a method of speculating on financial markets without owning the underlying assets. When trading CFDs, you’re predicting whether an asset’s price will rise or fall. You can trade CFDs on the Hang Seng Index, allowing you to speculate on its price movements. 

Listed Shares 

You can also trade individual shares of companies listed on the Hang Seng Index. While this allows you to gain exposure to the price movement of top performing Hong Kong companies, you may not be able to fully replicate the performance of the overall index, due to capital limitations and other factors.  

Start Trading the Hang Seng Index with Vantage through CFDs 

Trade the Hang Seng Index with Vantage CFDs to potentially capitalize on the Hong Kong market without directly owning underlying fund units or individual company shares. Benefit from advantageous features like tight spreads and affordable trading costs, starting from as low as $0 per trade. 

Manage risk effectively by utilising tools such as negative balance protection, price alerts, and stop losses, acknowledging the possibility of losses. Stay updated with real-time news alerts through our mobile app and trading platform, enabling swift responses to market changes and ensuring trading flexibility from wherever you are. 

Open a live account today and discover the Vantage advantage in trading the Hang Seng Index through CFDs. 

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