Summary: This section of the site looks at the Hong Kong Stock Exchange, it's influence and working. In terms of markets in Asia, this tiny location is very important - partly because of a history of enabling trade between China and the world.
The Hong Kong Stock Exchange ranks 9th in the world by market capitalization of listed companies.
Hong Kong Exchanges and Clearing Limited (HKEX) is the holding company of The Stock Exchange of Hong Kong Limited and is listed on it's own exchange.
The Hang Seng Index is used to record and monitor daily changes of the 33 largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These companies represent roughly 70% of capitalization of the Hong Kong Stock Exchange.
The Hang Seng Composite Index was launched on October 3, 2001, to provide a broad standard of the performance of the Hong Kong stock market.
Comprising the top 200 listed companies in terms of market
capitalisation, it is composed of the geographical series and the
industry series. The market cap of these companies accounts for about
97% of the total capitalization of the stocks in Hong Kong.
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Another new HSI Services approved stock market index is the FTSE/Xinhua China 25 Index (a joint venture between the FTSE Group and Xinhua Finance) which was launched on October 25, 2004, targeting Chinese red chip companies.
According to The Economist (Tata Sauce, 5th-11th March 2011), "In Hong Kong 15 families control more than two-thirds of the stock market".
As with other major bourses, there is a sectoral bias in Hong Kong. Just as Australia and Canada are very heavy on natural resources, Hong Kong has many property and financial companies listed. This is in part due to geography - we have all heard about the skyscrapers packed into a small space - but also because of history and the strong financial background of being a former tax haven.
Whether this bias will last is open to debate. The huge manufacturing operations across the border in China and the number of import-export opportunities that exist suggest that changes are due. However, these changes could take a long time to come. After all, Hong Kong has been an offshore banking and business centre for decades and a trading post for centuries. Some habits will be hard to break.
The Hang Seng Index
One thing is clear, Hong Kong is an easier and, hopefully, lower risk way to access Chinese investment opportunities. There are many 'Hong Kong and China' funds in existence. While transparency is not something it is noted for, investment on the Hang Seng does seem to be much more understandable to the foreign investor than in Shanghai.
The Hang Seng Index is a capitalization-weighted index of 33 companies. This means that the largest firms listed carry the greatest weight.
The classification of each stock is based on the information available to the public, for examples the annual reports and company announcements. HSI constituent stocks are selected with the use of extensive analysis, together with external consultation.
The index is maintained by a subsidiary of Hang Seng Bank. The components of the Hang Seng Index are divided into four subindexes: Commerce and Industry, Finance, Utilities, and Properties. The index was developed with a base level of 100 on 31st July 1964.
The largest listed company on the Hong Kong Stock Exchange Hang Seng Index is HSBC Holdings plc which is actually over 30% of the value of the Hang Seng!
The high number of banking, finance and property companies listed - including many of the largest firms - means that the Hang Seng Index is very much weighted towards these sectors. This can prove problematic for investors to obtain sufficient diversification either by investing in the index or directly into individual companies.
If you would like to learn a little more about HKSE related topics, click here: