Everything 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.

Key Points

1. The Hang Seng Index (HSI), launched on November 24, 1969, is a key indicator of Hong Kong's stock market, tracking 82 companies.
2. The HSI includes four subindices: Commerce and Industry, Finance, Utilities, and Properties, featuring companies like Tencent and Alibaba.
3. Trading the HSI offers exposure to leading companies, sector diversification, and instruments like futures and options, supporting various trading strategies.

What is the Hang Seng Index?

The Hang Seng Index (HSI) was established on November 24, 1969, and has become a crucial indicator of Hong Kong's economic health. It is currently owned and managed by Hang Seng Indexes Company Limited, a subsidiary of Hang Seng Bank.

The HSI is a free float-adjusted, market-capitalisation-weighted stock market index, meaning it calculates the value of each company by excluding locked-in shares, such as those owned by insiders, promoters, and governments.

Comprising 82 constituent companies, the HSI represents approximately 65% of the total capitalisation of the Hong Kong Stock Exchange. To maintain balance, the maximum relative weight of any single security is capped at 8%. As the primary stock market index in Hong Kong, the HSI is regarded as a key barometer for both the region and Asian markets.

Historical Performance of the Hang Seng Index

The Hang Seng Index has experienced both upward and downward trends throughout its history. While there have been periods of steady growth, it has also faced declines driven by various factors, including economic recessions, financial crises, and global events.

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

Asian Financial Crisis (1997-1998)
The Asian financial crisis in 1997 resulted in a sharp 30.74% decline in the HSI, which fell to a low of 6,850.60 points in October. This downturn was triggered by widespread currency devaluations and regional financial instability.

Dot-com Bubble (2000-2002)
Following the burst of the dot-com bubble, the HSI experienced a dramatic 67% drop before beginning a gradual recovery.

SARS Epidemic (2003)
The SARS outbreak led to a 16.66% decline in the HSI, reaching a low of 8,840.68 points.

Global Financial Crisis (2008)
During the global financial crisis, the HSI suffered a significant 48.27% decrease, hitting a low of 11,015.84 points.

Political Unrest (2019)
Political unrest in Hong Kong impacted the index, causing a 15.42% decline and a low of 25,281.30 points.

As of August 6, 2024, the Hang Seng Index stands at 16,612, representing a year-over-year decline of approximately 14.94%. After reaching a three-month low, Hong Kong stocks rebounded as the global market sell-off eased.

The index has decreased by 15% from its peak in May, primarily due to ongoing challenges in China's economy, especially a prolonged downturn in the property sector. Nevertheless, the index is currently trading at 8.2 times the expected earnings for the year, making it the second least expensive among major global markets.

Market Influences on the Hang Seng Index

1. Economic Indicators
Economic indicators like GDP growth, inflation rates, and changes in monetary policy from the Hong Kong Monetary Authority significantly affect investor sentiment and the Hang Seng Index. For example, China's PMI figures can heavily influence the index, serving as a barometer for the overall health of the Chinese economy.

2. Global Market Sentiment
The Hang Seng Index is closely linked to other major global stock markets. Economic and political events, such as trade wars, geopolitical tensions, and pandemics, can greatly impact the HSI’s performance. Market sentiment and expectations play vital roles in shaping the index's direction.

3. Industry Trends
The Hang Seng Index consists of four sub-sectors, reflecting Hong Kong's economic landscape and serving as an indicator for Asian markets. Greater balance across various industry groups can lead to the inclusion of more 'new economy' constituents, particularly in technology and healthcare, enhancing overall earnings growth. Additionally, the financial sector’s focus on ESG investments has resulted in the creation of Hang Seng Index funds specifically targeting ESG criteria.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.