What is the Hang Seng Index (HSI)?
The Hang Seng Index (HSI) is a stock market index in Hong Kong. It records and monitors the daily changes in stock prices of the 50 largest Hong Kong stock market companies. As the companies represent almost 60% of the Hong Kong Stock Exchange, the Hang Seng Index is the main indicator of the Hong Kong market’s overall performance. Hang Seng Indexes Company Limited is currently responsible for compiling and maintaining the index.
History of the Hang Seng Index
The Hang Seng Index debuted in November 1969. It was conceived by Ho Sin Hang, the chairman of the Hang Seng Bank, who intended to create a Dow Jones Index for Hong Kong.
In 1985, four sub-indices were created to make the index clearer. Constituent stocks are now classified into four distinct sectors:
- Hang Seng Finance Sub-Index
- Hang Seng Utilities Sub-Index
- Hang Seng Properties Sub-Index
- Hang Seng Commerce & Industry Sub-Index
Hang Seng Index Constituent Stocks
The stocks that constitute the Hang Seng Index include major banks, utility companies, real estate companies, and entertainment companies. Notable constituent stocks include:
- HSBC Holdings plc
- Hang Seng Bank Ltd
- China Construction Bank
- China Life
- Hong Kong and China Gas Company Limited
- Country Garden
- China Resources Land Limited
- Swire Group
- Geely Auto
- China Mobile Ltd
- Mengniu Dairy
How are Hang Seng Index Constituent Stocks Selected?
For a stock to be considered for inclusion in the Hang Seng Index, it is subjected to extensive analysis with the help of external consultation. To be qualified for selection, companies must meet certain minimum requirements:
- Must be one of the companies that comprise the top 90% of total market value for all ordinary shares
- Must be one of the companies that comprise the top 90% of total turnover on the Stock Exchange of Hong Kong Limited
- Must have a listing history of at least 24 months or meet certain other requirements if they have been listed for less than 24 months
Once eligible candidates are identified, final selections take place. They are based on the eligible companies’:
- Market capitalization and turnover rankings
- Financial performance
- Representation of the respective sub-sectors within the Hang Seng Index
How is the Hang Seng Index Calculated?
The Hang Seng Index is calculated based on a free-float-adjusted, market capitalization-weighted approach. The following formula is used:
- P(t): Current price
- P(t-1): Closing price yesterday
- IS: Issued shares
- FAF: Free-float-adjusted factor, adjusted quarterly (between 0 and 1)
- CF: Cap factor, adjusted quarterly (between 0 and 1)
Statistics and Annual Returns
Although the Hang Seng Index was started in 1969, the index was calculated retroactively to 1965. Its base was set at 100 points, equal to the total value of the Hang Seng Index’s constituent stocks when the market closed on July 31, 1964.
On August 31, 1967, the Hang Seng Index reached its all-time low of 58.61. It first passed 10,000 points in December 1993, then passed 20,000 points in December 2006. In October 2007, it passed the 30,000-point milestone for the first time. The Hang Seng Index’s all-time high was set on January 26, 2018, at 33,223.58 points. As of December 2020, the Index sits at around 26,500 points.
Since 1965, the average percentage change in the Hang Seng Index is approximately 19.2% per year. The highest annual return occurred in 1972 when the index rose 147.07%. The lowest annual return occurred in 1974 when it contracted by -60.54%.
In the 2010s, the Hang Seng Index grew by an average of approximately 3.7% per year. The highest returns of the decade were seen in 2017 when the index grew by 35.99%. The lowest returns of the decade occurred in 2011 when it fell by -19.97%.
To monitor daily reports for the Hang Seng Index, investors may use the following reports:
- Hang Seng Index’s Daily Bulletin
- Hang Seng Index (HSI) Constituent Stocks Performance
- Index Performance Summary
- Total Returns Index Series Daily Bulletin
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