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Understanding the Hang Seng Index

If you are considering investing into the Chinese stock market, one of the first concepts that you will need to become familiar with is the Hang Seng Index, also abbreviated as HSI. This index is a free float-adjusted index based upon the market capitalization of weighted stocks based in Hong Kong. This index measures the performance and daily changes occurring in the largest companies of the Hong Kong stock market, similar to the primary S&P 500 Index found in the US on their New York Stock Exchange (NYSE).

The Hang Seng Index tracks 40 Hong Kong companies, representing approximately 65% of the total capitalization found on the Hong Kong Stock Exchange today. The index is broken into 4 sub indices, helping to classify the stocks. These four sub-categories are the Hang Seng Finance Sub-Index, the Hang Seng Utilities Sub-Index, the Hang Seng Properties Sub-Index and the Hang Seng Commerce and Industry Sub-Index. There is some discussion that the number of stocks in this index will increase to 50 in the very near future.

In addition to the Hang Seng Index, there is also the Hang Seng Composite Index Series, developed in 2001, and comprising 200 stocks from the Hong Kong Index, or 97% of the market’s total market capitalization.

The Hang Seng Industry Classification System is used to reflect the stock performance among different market sectors. The classification is based upon the sales revenues from each business area and the sources of the business’s revenue. The stock’s will be re-classified as needed if they undergo a significant change such as a merger or an acquisition. The Hang Seng Industry Classifications include the following: Energy Materials Industrial Goods Consumer Goods Services Telecommunications Utilities Financials Properties and Construction Information Technology Conglomerates

One of the primary attractions for many investors of the Hang Seng Index is that it is a consolidation of the largest companies on the Hong Kong Index. Typically with minimal fees, and index fund is an excellent investment choice for an investor who is seeking capital appreciation but not the need to actively manage their portfolio. While these index funds are not professionally managed, they do provide an investor with the ability to have large cap representation within their portfolio.