Guide to Hong Kong's Hang Seng Index

Invest in the Hang Seng with ETFs and ADRs

Financial District, Hong Kong, China
Tim Graham/Getty Images News/Getty Images

Hong Kong is the world's freest economy and one of the world's leading financial centers, with low taxation, near-free port trade, and international financial markets. These dynamics have made the country's stock market - the Hong Kong Stock Exchange - the second largest in Asia behind Japan's Tokyo Stock Exchange and the fifth largest in the world.

International investors tracking this market often watch the Hang Seng Index, which tracks the 48 largest companies traded on the Hong Kong Stock Exchange, accounting for about 60% of the exchange's total market capitalization.

Since its inception in July of 1964, the index has moved from 100 points to more than 20,000 points in December of 2006.

The Hang Seng Index

The Hang Seng Index is a stock market index consisting of 48 of the largest and most liquid companies listed on the Hong Kong Stock Exchange. Like the S&P 500 in the U.S., the index is designed to mimic the overall performance of the stock market at any given time, with a base value of 100 being issued on July 31, 1964.

For international investors, the Hang Seng Index provides an easy glance into the health of Hong Kong's stock market, which can be difficult to obtain elsewhere. The index supplements many other exchange-traded funds ("ETFs") and American Depository Receipts ("ADRs") that provide additional exposure to various Hong Kong stocks.

International investors can find information about the Hang Seng Index on the exchange's website at http://www.hsi.com.hk/HSI-Net/.

Other Hong Kong Indices to Follow

There are many different versions of the Hang Seng Index available to international investors, ranging from industrial divisions to corporate sustainability and other niches. The core industrial divisions include finance, utilities, properties, and commerce/industry, while other divisions include access to both mainland and China-affiliated companies in the space.

The major Hang Seng Indexes include:

  • Hang Seng China Enterprises Index
  • Hang Seng China-Affiliated Corporations Index
  • Hang Seng China H-Financials Index
  • Hang Seng Corporate Sustainability Index
  • Hang Seng Mainland 100
  • Hang Seng HK 35
  • Hang Seng REIT Index
  • HIS Volatility Index
  • Hang Seng China 50 Index
  • Hang Seng China AH Premium Index
  • Hang Seng China A Industry Top Index

International investors can view a full list of these indices on the Hang Seng Index's website at http://www.hsi.com.hk/HSI-Net/.

Investing in the Hang Seng Index

The easiest way to invest in the Hang Seng Index is using ETFs, although there are no funds that are traded in the United States. The best alternative is the iShares MSCI Hong Kong Index Fund ETF (EWH), which tracks the MSCI Hong Kong Index - a capitalization-weighted index that aims to capture 85% of the Hong Kong's total market capitalization.

With over $3.6 billion in total net assets under management, the ETF has a modest expense ratio of 0.53% with 42 holdings in its portfolio. International investors should keep in mind, however, that the index is 61.4% weighted towards financials, 13.4% weighted towards utilities, and 12.7% weighted in consumer discretionary, creating some concentration risks.

Investors looking for another option may also consider ADRs, which represent individual companies traded on the Hong Kong Stock Exchange. These companies include AIA Group Ltd. (AAGIY), Hutchison Whampoa Ltd. (HUWHY), and Sun Hung Kai Properties Ltd. (SUHJY).

Key Points to Remember

  • The Hang Seng Index is a stock market index that represents approximately 60% of the Hong Kong stock market's total market capitalization.
  • International investors looking for U.S. access to the Hang Seng Index may want to consider purchasing the iShares MSCI Hong Kong Index ETF (EWH).
  • As an alternative, international investors can purchase ADRs of Hong Kong stocks listed in the Hang Seng Index.