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Hang Seng Index rebounds from tech bloodshed

Hong Kong’s benchmark equity gauge Hang Seng Index posted a mild recovery ahead of its dramatic wide-ranging overhaul.

  • Hong Kong’s Hang Seng Index advanced 1.5% on Tuesday morning
  • Shares of tech and consumer names had plunged last week, weighing on the index
  • A fund manager foresees the index touching 40,000 points after its revamp
  • Potential deletions include a Chinese bank and insurance firm
  • Trade the Hang Seng Index, long or short, with an IG account

Hang Seng Index shares on the mend

Blue-chip benchmark Hang Seng Index (HSI), the main indicator of Hong Kong’s overall market performance, inched up on Tuesday (09 March) morning following steep losses over the past week.

HSI rose 1.5% or 438.14 points to 288,978.97 as of 11:21 SGT.

But investors remained on edge over the prospect of higher interest rates as the global economy recovers, AFP reported. HSI is still down about 7% from its peak of 31,084.94 on 17 February 2021.

Dragged by a tech rout, the broader index had sunk 1.9% to 28,540.83 at Monday’s close. The same day, its tech sub-index, which tracks tech giants including Alibaba and Tencent Holdings, slumped more than 6%.

The decline came after inflation fears worsened as the US Senate passed a US$1.9 trillion stimulus bill, while investors also worried about possible tighter policy in China to rein in lofty valuations, Reuters reported.

Major makeover from May 2021

Hong Kong’s benchmark equity gauge is facing a dramatic revamp from May 2021 till the middle of 2022.

Changes will include limiting each stock’s weighting at 8%, boosting the number of constituents to 80, and shortening the listing history requirement to three months, according to a statement by Hang Seng Indexes Co last Monday (01 March).

Fund managers foresee the index’s performance to improve as a whole with more diversified constituents and a higher weightage of new-economy stocks. HSI ‘is likely to test the level of 40,000 in the future’ as more new-economy firms join, said Pegasus Fund Managers managing director Paul Pong.

Goldman Sachs and CIMB analysts separately predicted that consumer and healthcare stocks could see the biggest improvement to sector representation when the HSI membership is expanded, though this will come at the expense of financial stocks.

Prime candidates to join the index include vaping technology firm Smoore International Holdings, short-video app company Kuaishou Technology, and pharmaceutical e-commerce platform JD Health International, said Goldman Sachs and CIMB.

Alibaba Group Holding could also benefit from the HSI reform, ‘but many investors are still worried about the political risk facing it, given uncertainty over Ant Group’s restructuring and IPO schedule’, UOB Kay Hian’s Steven Leung wrote. Investors may instead choose peers such as JD.com, which faces less political risk and faster earnings growth, Leung added.

Who will lose out?

Local Hong Kong firms may struggle to preserve their weights in the index - their aggregate weighting could fall to 32% from 40% as mainland China companies’ weighting increases, Goldman Sachs said.

Stocks that could potentially be removed from HSI include Bank of Communications Co and China Life Insurance Co, according to SmartKarma.

Saxo Markets analyst Edison Pun believes the biggest losers will be in the finance or banking sectors, as they are the heaviest members in the index presently. With the adjustment in the weighting cap, these stocks’ importance ‘would be greatly reduced,’ he added.

How to trade indices with IG

Are you feeling bullish or bearish on the Hang Seng Index?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform, in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <Hong Kong HS50> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

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