Trading and invest in the HS50
You can gain exposure to the HS50 by trading or investing. Your choice may depend on your personal preference and risk tolerance, or the trading hours of the index. The differences between the two methods are summarised in the table below:
|Trading the HS50||Investing in the HS50|
|Ways to trade||CFDs||Buying ETFs or shares outright|
|Market hours||11pm Sunday to 10pm Friday (UK time), non-stop||8am to 4.30pm (UK time), Monday to Friday|
|Initial capital required||1.5% of trade size||100% of trade size|
|Timeframe||Shorter term||Longer term|
|Liquidity||Higher liquidity offered by trading the index than investing in ETFs|
IG also offers weekend trading hours on the FTSE 100, from 4am on Saturday to 10.40pm on Sunday (UK time).
Trading the HS50
If you want to get direct exposure to the Hang Seng 50’s price movements, you may choose to trade, rather than invest. You can trade the index via CFDs, which enable you to speculate on upward or downward price movements.
To open a position, you’ll need a deposit – called margin. This deposit gives you exposure to the full value of the trade, which means your profits and losses will be magnified.
Investing in the HS50
If you want to invest in the Hang Seng 50, you can buy shares in ETFs that track the price of the index or shares of individual constituents. You can make a profit if you sell your assets after the share price goes up, and you could also receive dividend payments if made.
Investments require the full value of the position upfront, because you are taking ownership of the underlying assets.
With IG you cannot invest directly in shares or ETFs. You can however trade them via CFDs.
Ways to trade the Hang Seng 50
When trading with IG, you can get exposure to the Hang Seng through CFDs by trading the following:
By choosing to trade cash indices, you trade the current price of the underlying market, known as the spot price. Cash indices offer narrower spreads than other markets, which is why they are often preferred by short-term traders. However, if these traders do not close their positions by the end of the trading day, they will be charged an overnight funding fee.
When you trade HS50 futures, you agree to trade the index at a specific price at a fixed date in the future. Index futures are preferred by longer-term traders because they can hold positions without incurring overnight funding charges, as these are included in the spread. Index futures are always settled in cash, as there’s no physical underlying asset to deliver.
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You can go long or short on the share price of constituents within the HS50 without owning them. Not only does this have tax benefits compared to traditional buy-and-hold investing,1 but it means you can take advantage of markets that fall in price as well as those that rise. If you think the share price will go up, you go long (buy) and if you think it will fall, you go short (sell). You will make a profit if the market moves in your favour.
You can capitalise on short-term price movements across all 50 companies on the Hang Seng 50 by trading an ETF, which imitates the composition of the index. ETFs are traded in a similar way to stocks, but they track an underlying asset or basket of assets. When you trade HS50 ETFs with CFDs, you can get amplified exposure because you’re trading using leverage.
What moves the HS50’s price?
The HS50’s price is moved by factors such as:
Given the proximity to China and the large number of Chinese companies dominating the HS50, one can expect the economic and political backdrop in the country (including trade wars) to play the key role in the index’s price movements.
News, such as reports surrounding the coronavirus outbreak, can have a significant impact on the price of the HS50 index. For example, between February and March 2020, at the height of the pandemic, the index declined by about 10.3%.
When constituents of the Hang Seng 50 release their earnings reports, it’s important to note if there are any big changes to each company’s market capitalisation. If so, and the company has significant weight in the HS50, it can sway the index’s price.
Interest rate decisions
Generally, when interest rates go down, markets tend to rise and when interest rates go up, the market reacts negatively. This can also be true for the HS50, but it is not a guarantee. Stay abreast of interest rate decisions by major central banks as it can cause some short-term volatility in the market.
Currency rates and fluctuations
The strength of currencies, such as HKD, CHD and JPY have a direct impact on the performance of the companies within the HS50, and thus the index itself. This is because the constituents of the HS50 do business with countries across the world, which means their income is dependent on various exchange rates. If these rates fluctuate often, the index’s price will also be affected.
Trading strategies and tips
- Choose your trading style: Decide how you want to trade the index by choosing a trading style based on your risk appetite and how much time you have available. There are four main trading styles , suited to different types of traders
- Examine charts and price action: Use HS50 price charts to assist in determining market sentiment. Knowing how to use charts when trading can help you to estimate what the index price might do next
- Conduct technical analysis using indicators: Learn how technical analysis and indicators can help you to identify chart patterns, trading signals and trends in the market
- Set trading alerts:Set criteria for the HS50 and get notified when the criteria are met. This way, you can trade instantly if you think the market has reached the right price.
The HS50 is a capitalisation weighted-index, made up by the 50 largest and liquid companies on the Hong Kong Stock Exchange (SEHK). This means that the larger component stocks will find a greater influence upon the overall index.
Representation for each stock is capped at 10% to avoid any single stock dominating the index. The 50 component stocks can be grouped into four categories forming their own sub-indices: finance, utilities, properties, and commerce and industry. A review of the index is conducted quarterly.
How is the HS50 calculated?
The HS50 is calculated by measuring the market capitalisation of all the companies listed on the Stock Exchange of Hong Kong (SEHK). The calculation takes various factors into account, such as the current value of each stock, the closing price of the previous day, and number of shares available.
Constituent stocks must be among the top 90% of the total turnover on the SEHK and have a listing history of at least two years. The index is calculated in real-time at two-second intervals during the trading hours of the exchange. The 50 companies that qualify are listed on the HS50.
What are the HS50 trading hours?
The Hang Seng trades between 2.30am and 9am UK time (9.30am and 4pm Hong Kong time), Monday to Friday. There is an hour lunch break between 5am and 6am UK time (12pm to 1pm Hong Kong time). IG also offers exclusive weekend trading hours for the HS50, from 4am on Saturday to 10.40pm on Sunday (UK time).
You can trade the HS50 via cash indices or index futures. When trading cash indices, you deal at the current price of the underlying market and when trading index futures, you choose to trade the HS50 at a specific price on a specific date.
Companies get onto the HS50 by having a market capitalisation that is among the top 50 on the SEHK. If the share price of a company drops significantly, negatively affecting its market capitalisation, it could drop off the HS50 list. The opposite is true if share prices go up. A new company could make it onto the HS50, causing another company to lose its place.
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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.