How to Gain Access to the Fast-Growing Chinese Technology Companies Through the Hang Seng TECH Index
Hong Kong’s Hang Seng Indexes recently launched the Hang Seng TECH Index.
Following its launch, exchange-traded funds (ETFs) that track the index have also cropped up so that investors can gain exposure to the high-growth Chinese tech companies.
Right now, let’s explore what the new index is all about and the options available for investors to easily diversify their portfolio.
TL;DR: Hang Seng TECH Index And Related ETFs
Here’s a summary of the article:
- The Hang Seng TECH Index comprises the 30 largest technology companies listed on the Hong Kong stock exchange.
- Some of the index components include companies such as Lenovo Group, NetEase, and Xiaomi.
- One cannot invest directly in an index. However, there are four ETFs tracking the Hang Seng TECH Index that investors can buy into.
What’s the Hang Seng TECH Index About?
The Hang Seng TECH Index was launched on 27 July 2020.
And it tracks 30 of the biggest technology growth companies listed on the Stock Exchange of Hong Kong.
Those companies must be part of the industrials, consumer discretionary, healthcare, financials, or information technology sector.
They must also have high business exposure to technology themes such as the internet (including mobile), fintech, cloud computing, e-commerce, or digital.
Other than the requirement above to be eligible, it must also meet at least one of the following criteria:
- It must be a technology-enabled business (e.g. via internet/mobile platform); or
- Have a research and development (R&D) expense to revenue ratio of more than or equal to 5%; or
- Possess year-on-year revenue more than or equal to 10%.
Only companies incorporated in Greater China (mainland China, Hong Kong, Macau or Taiwan) and listed on the main board of the Hong Kong stock exchange will be eligible for selection.
The index is weighted by free-float market capitalisation, which refers to a company’s total number of outstanding shares that can be publicly traded multiplied by its share price. The companies with the greatest market capitalisations will have the highest weights in the index.
Index components will be reviewed and rebalanced every quarter (data cut-off occurs end of March, June, September, and December).
Based on back-tested performance over the past five years (as of 31 August 2020), the Hang Seng TECH Index would have posted a gain of 155% versus the Hang Seng Composite Index’s (similar to Singapore’s Straits Times Index) increase of just 16%.
What Are the Companies Part of the Hang Seng TECH Index?
Some of the companies from the index include well-known names like Alibaba, Tencent, Meituan Dianping, JD.com, and Xiaomi.
Here’s a full list of the 30 components of the Hang Seng TECH Index and their respective weights:
|Name||Ticker||Approximate Weight (%)||Sector|
|Xiaomi Corporation||1810||11.16||Information Technology|
|Meituan Dianping||3690||10.11||Information Technology|
|Alibaba Group||9988||9.17||Consumer Discretionary|
|Sunny Optical Technology||2382||6.44||Information Technology|
|Semiconductor Manufacturing International Corporation (SMIC)||981||4.65||Information Technology|
|Kingdee International Software Group||268||4.46||Information Technology|
|Alibaba Health Information Technology||241||4.38||Health Care|
|Lenovo Group Limited||992||3.62||Information Technology|
|Ping An Healthcare and Technology Co Ltd||1833||3.51||Health Care|
|Kingsoft Corporation||3888||3.31||Information Technology|
|AAC Technologies||2018||3.15||Information Technology|
|BYD Electronic (International) Company||285||2.51||Information Technology|
|ASM Pacific Technology Ltd||522||2.48||Information Technology|
|China Literature Ltd||772||2.13||Communication|
|ZhongAn Online P&C Insurance Co Ltd||6060||1.86||Financials|
|Weimob Inc||2013||1.83||Information Technology|
|ZTE Corporation||763||1.65||Information Technology|
|Koolearn Technology Holding Ltd||1797||1.35||Consumer Discretionary|
|Hua Hong Semiconductor||1347||1.23||Information Technology|
|Maoyan Entertainment||1896||0.76||Consumer Discretionary|
|HengTen Networks Group Limited||136||0.54||Consumer Discretionary|
|FIT Hon Teng Ltd||6088||0.51||Information Technology|
|Q Technology Group Co Ltd||1478||0.38||Consumer Discretionary|
|NetDragon Websoft Holdings Limited||777||0.33||Communication|
|Yixin Group Ltd||2858||0.25||Financials|
Source: Hang Seng Indexes (as of 31 August 2020)
How Can Investors Invest in Hang Seng TECH Index?
One cannot invest directly in an index. However, there are ETFs tracking the Hang Seng TECH Index that investors can invest in.
Below is a table showing the various ETFs that investors can choose from:
|ETF||Ticker||Currency||Assets Under Management (HKD)||Ongoing Charges (%)
|iShares Hang Seng TECH ETF||3067||HKD||960.01M||0.25%|
|ChinaAMC Hang Seng TECH Index ETF||3088||HKD||393.66M||0.60%|
|Hang Seng TECH Index ETF||3032||HKD||319.09M||0.87%|
|CSOP Hang Seng TECH Index ETF||3033||HKD||4.28B||1.05%|
Source: Stock Exchange of Hong Kong
To know the latest index holdings and understand the risks involved with each ETF, you should refer to the ETF’s website.
For example, the iShares Hang Seng TECH ETF uses a representative sampling investment strategy that can result in a greater tracking error than a full replication investment strategy (used in STI ETFs).
Is Hang Seng TECH Index ETF for You?
If you would like to diversify your portfolio into fast-growing Chinese tech companies, the Hang Seng TECH Index ETF could be it.
However, do note that since the index components are growth companies, the index doesn’t trade at a low valuation.
As of 17 July 2020, the Hang Seng TECH Index had a price-to-earnings (P/E) ratio of 45x while the Hang Seng Composite Index’s P/E ratio stood at just 12x.
Investors should be comfortable paying a higher-than-normal valuation to invest in the fast-growing Chinese tech companies.
If you choose to go for the iShares Hang Seng TECH ETF due to its low expense ratio, you should also be satisfied with the ETF possibly using financial derivatives such as futures contracts and options to achieve its investment objective.
(P.S. Don’t have a brokerage account to invest in the Hong Kong-listed ETFs? Do check out the best brokers backed by real user reviews if you wish to open an account!)
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
The article has been edited to highlight the risk involved with a representative sampling strategy for the iShares Hang Seng TECH ETF.