How to Gain Access to the Fast-Growing Chinese Technology Companies Through the Hang Seng TECH Index
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How to Gain Access to the Fast-Growing Chinese Technology Companies Through the Hang Seng TECH Index

profileSudhan P
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Looking to invest in FAANG stocks of the East? The answer for a Nasdaq-like index for Hong Kong with a focus on technology companies has finally arrived.

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.

Man saying technology is winning
Source: Giphy

TL;DR: Hang Seng TECH Index And Related ETFs

Hang-Seng-TECH-Index-And-Related-ETFs Seedly

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:

NameTickerApproximate Weight (%)Sector
Xiaomi Corporation181011.16Information Technology
Meituan Dianping369010.11Information Technology
Alibaba Group99889.17Consumer Discretionary
Tencent Holdings 7007.88Communication
Sunny Optical Technology 23826.44Information Technology
JD.com96185.67Consumer Discretionary
Semiconductor Manufacturing International Corporation (SMIC)9814.65Information Technology
Kingdee International Software Group2684.46Information Technology
Alibaba Health Information Technology2414.38Health Care
Lenovo Group Limited9923.62Information Technology
Ping An Healthcare and Technology Co Ltd18333.51Health Care
Kingsoft Corporation38883.31Information Technology
AAC Technologies20183.15Information Technology
BYD Electronic (International) Company2852.51Information Technology
ASM Pacific Technology Ltd5222.48Information Technology
NetEase Inc99992.47Communication
China Literature Ltd7722.13Communication
ZhongAn Online P&C Insurance Co Ltd60601.86Financials
Weimob Inc20131.83Information Technology
ZTE Corporation7631.65Information Technology
Tongcheng-Elong7801.57Consumer Discretionary
Koolearn Technology Holding Ltd17971.35Consumer Discretionary
Hua Hong Semiconductor13471.23Information Technology
Maoyan Entertainment18960.76Consumer Discretionary
XD Inc24000.62Communication
HengTen Networks Group Limited1360.54Consumer Discretionary
FIT Hon Teng Ltd60880.51Information Technology
Q Technology Group Co Ltd14780.38Consumer Discretionary
NetDragon Websoft Holdings Limited7770.33Communication
Yixin Group Ltd28580.25Financials

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:

ETFTickerCurrencyAssets Under Management (HKD)Ongoing Charges (%)
iShares Hang Seng TECH ETF 3067 HKD960.01M0.25%
9067USD
ChinaAMC Hang Seng TECH Index ETF3088HKD393.66M0.60%
9088 USD
Hang Seng TECH Index ETF3032 HKD319.09M0.87%
CSOP Hang Seng TECH Index ETF3033 HKD4.28B1.05%

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.

Hang Seng TECH index vs Hang Send Index characteristics
Source: Hang Seng Indexes

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!)

Have Burning Questions Surrounding The Stock Market?

Why not check out the SeedlyCommunity and participate in the lively discussion regarding stocks!

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.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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