Hang Seng Index

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"Hang Seng" redirects here. For the bank with the same name, see Hang Seng Bank. For all other uses, see Hang Seng (disambiguation).

The Hang Seng Index (abbreviated: HSI, Chinese: 恒生指數) is a freefloat-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 40 companies represent about 65% of capitalization of the Hong Kong Stock Exchange.

HSI was started on November 24, 1969, and is currently compiled and maintained by HSI Services Limited, which is a wholly owned subsidiary of Hang Seng Bank, the largest bank registered and listed in Hong Kong in terms of market capitalisation. It is responsible for compiling, publishing and managing the Hang Seng Index and a range of other stock indexes, such as Hang Seng China AH Index Series, Hang Seng China Enterprises Index, Hang Seng China H-Financials Index, Hang Seng Composite Index Series, Hang Seng Freefloat Index Series and Hang Seng Total Return Index Series.

Contents

[edit] Statistics

When the Hang Seng Index was first published, its base of 100 points was set equivalent to the stocks' total value as of the market close on July 31, 1964. Its all-time low is 58.61 points, reached retroactively on August 31, 1967, after the base value was established but before the publication of the index. The Hang Seng passed the 10,000 point milestone for the first time in its history on December 10, 1993 and, 13 years later, passed the 20,000 point milestone on December 28, 2006. In less than 10 months, it passed the 30,000 point milestone on October 18, 2007. Its all-time highs, set on October 30, 2007, are 31,958.41 points during trading and 31,638.22 points at closing. From October 30, 2007 thru March 9, 2008, the index lost 9,426 points or approximately 30% of its value wiping out hundreds of billions of investor wealth. The Hang Seng stock average fell more than 3.5 percent at at 22,574 on March 13, 2008, in the wake of Wall Street's retreat from its biggest rally in five years, with regional investors worried by the continued slide in the United States dollar and ongoing troubles in the Economy of the United States.[1] Hong Kong's Hang Seng index plunged as much as 5.4 percent before trimming some losses to trade at 21,304.38, down 4.2 percent, on March 17, 2008, after JPMorgan Chase told it would acquire troubled U.S. investment bank Bear Stearns, signaling to investors the depths of the U. S.-Subprime mortgage crisis.[2] The Hang Seng index fell 4.4 percent to 20,896.14 on March 20, 2008 amid mounting worries over the likely impact of a U.S. recession on China's own booming economy.[3] The Hang Seng index jumped 4.5 percent on March 25, 2008 to 22,063.11. Reasons for the surge were encouraging data concerning the United States housing data and a rally on Wall Street. Investors were in a good mood: A new agreement will give Bear Stearns shareholders five times the payout that was set in a JPMorgan Chase March 16, 2008-buyout deal.[4]

[edit] Components

On January 2, 1985, four sub-indices were established in order to make the index clearer and to classify constituent stocks into four distinct sectors. There are 43 HSI constituent stocks in total. As of June 10, 2008, they are:

Hang Seng Finance Sub-index

Hang Seng Utilities Sub-index

Hang Seng Properties Sub-index

Hang Seng Commerce & Industry Sub-index

Removed, effective June 10, 2008:[1]

In the future, the number of constituent stocks will be increased to 50 in order to reflect the changes in the Hong Kong stock market and to maintain the index as the most representative market benchmark.

The Hang Seng Composite Index Series (恒生綜合指數) was launched on October 3, 2001, targeting on providing 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 capitalization of these companies accounts for about 97% of the total capitalization of the stocks in Hong Kong. To ensure fairness in its activities, the HSI Services established the Independent Advisory Committee to give advice on issues pertaining to the indexes. The Committee keeps reviewing the constituent stocks of HSI on a quarterly basis. Usual changes are expected.

[edit] Hang Seng Industry Classification System

Hang Seng Industry Classification System (formerly called Hang Seng Stock Classification System) is a comprehensive system designed for the Hong Kong stock market by HSI Services Limited. It reflects the stock performance in different sectors. It caters for the unique characteristics of the Hong Kong stock market and maintains the international compatibility with a mapping to international industry classification systems.

General classification guidelines:

i) The sales revenue arising from each business area of a company is the primary parameter of stock classification, and the net profit will also be taken into consideration to determine whether that company's business runs well.

ii) A company will be classified into different sectors according to its majority source of sales revenue.

iii) Re-classification of a stock's Industry Sector will occur once the company's business has undergone a major change, such as, substantial merger or acquisition.

Industry sectors:

  • Energy (能源業)
  • Materials (源材料業)
  • Industrial Goods (工業製品業)
  • Consumer Goods (消費品製造業)
  • Services (服務業)
  • Telecommunications (電訊業)
  • Utilities (公共事業)
  • Financials (金融業)
  • Properties & Construction (地產建築業)
  • Information Technology (資訊科技業)
  • Conglomerates (綜合企業)

Source of information

The classification of each stock is based on the information available to the public, for examples the annual reports and company announcements.

[edit] Selection criteria for the HSI constituent stocks

HSI constituent stocks are selected with the use of extensive analysis, together with external consultation. To be qualified for selection, a company:

  • must be among those that comprise top 90% of the total market value of all ordinary shares;
  • must be among those that comprise top 90% of the total turnover on the Stock Exchange of Hong Kong Limited "SEHK" (香港交易所);
  • should have a listing history of 24 months or meet the requirements of the following Guidelines:

Guidelines for Handling Large-cap Stocks Listed for Less than 24 Months

For a newly listed large-cap stock, the minimum listing time required for inclusion in the stock universe for the HSI review is as follows:

Average MV Rank at Time of Review Minimum Listing History
Top 5 3 Months
6-15 3 Months
16-20 12 Months
21-25 18 Months
Below 25 24 Months

Among the eligible candidates, final selections are based on their:

  • market capitalisation and turnover rankings;
  • representation of the respective sub-sectors within HSI; and
  • financial performance.

[edit] Calculation formula for HSI

The current Hang Seng Index is calculated from this formula:

\textrm{Current~Index}= \frac{\sum\textrm{[}\textrm{P(t)}\times\textrm{IS}\times\textrm{FAF}\times\textrm{CF}\textrm{]}}{\sum\textrm{[}\textrm{P(t-1)}\times\textrm{IS}\times\textrm{FAF}\times\textrm{CF}\textrm{]}} \times \textrm{Yesterday's~Closing~Index}.

Descriptions on parameters:

  • P(t)：Current Price at Day t
  • P(t-1)：Closing Price at Day (t-1)
  • IS：Issued Shares
  • FAF：Freefloat-adjusted Factor, which is between 0 and 1, adjusted every six months
  • CF：Cap Factor, which is between 0 and 1, adjusted every six months

[edit] Daily reports for HSI

Investors in Asian markets monitor the following reports for investment activities:

  • Hang Seng Indexes Daily Bulletin
  • Hang Seng Index (HSI) Constituent Stocks Performance
  • Index Performance Summary
  • Total Return Index Series Daily Bulletin

[edit] Representativeness of the HSI

The representativeness of the HSI can be studied by the turnover of the whole stock market and by how much its market capitalisation covers. The aggregate market value of the HSI constituent stocks is maintained at approximately 70% of the total market value. This coverage ratio is a positive sign when compared with major overseas stock indices.


[edit] Other related Hang Seng stock indexes

[edit] References

  1. ^ a b c Hang Seng Indexes (2008-05-09). "Hang Seng Indexes Announces Index Review Results" (PDF). Press release. Retrieved on 2008-05-09.

[edit] External links