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20 years ago, the most valuable companies in the world were General Electric, Exxon Mobile and Walmart. Today, the six most valuable companies in the world are Apple, Microsoft, Amazon, Alphabet (Google), Alibaba and Facebook – all technology companies.
Over the past two decades, technology has revolutionised our world, from the way we work (laptops), buy products we need (e-commerce), search for information (search engine) and interact and build relationships with one another (social media).
Typically, most of these technology companies are based in the United States. For example, the five biggest components of the S&P 500 today are Apple, Microsoft, Amazon, Facebook and Alphabet. Other companies that have done well over the past few years include Netflix Salesforce, Adobe and Tesla. These are all companies listed on U.S. stock exchanges.
Besides the United States, the other geographical hotspot for major technology companies is China. As China’s economy continues growing rapidly, technology companies helping to fuel this growth will likely continue to do well. These include the likes of Alibaba, Tencent and Xiaomi to name a few. These are companies you can invest in via the Hong Kong Stock Exchange (HKEX).
How Technology Companies Have Performed In 2020 On The HKEX
Similar to their U.S. counterparts, Chinese technology companies on the HKEX have done well in 2020. The Hang Seng TECH Index, which represents the 30 largest technology companies listed on the HKEX – and which was launched on 27 July 2020, has increased by about 18% since its launch, from 6,774.78 on 27 July 2020 to 7,997.52 as of 20 November 2020.
(Note: Index was launched on 27 July 2020. Information prior to the launch of the index is back-tested based on historical performance)
This compares favourably to the S&P 500, which has gone up by about 9.8% during the same period, and also the Hang Seng Index itself, which is up about 7.5% during the period. This highlights the significant difference in performance between tech and non-tech companies in 2020.
Investing In Technology Companies Listed On The HKEX
As an investor, we can invest directly in any of the technology companies that are part of the Hang Seng TECH Index. These include the likes of Alibaba, Tencent, Meituan, Xiaomi and Lenovo.
However, as experienced investors know, choosing specific stocks to invest in comes with its own unique risk. The main risk is that individual stocks may underperform, even when the entire sector is doing well.
For example, if you had invested in Lenovo Group at the start of the year, you would have paid HK$5.37 based on the share price on 2 Jan 2020. As of 13 Nov 2020, the share price of the company is at HK$5.09 meaning you would have made a loss. However, if you invested in Xiaomi Corp instead, you would have paid HK$11.22 on 2 Jan 2020. As of 13 Nov 2020, share price of Xiaomi Corp is HK$24.25, up about 216%.
The point we are trying to raise here is not that Xiaomi is a better company compared to Lenovo (though investors would certainly argue so based on the share prices over the past year). Rather, we want to point out that investing in individual technology companies based on the general assumption that tech companies will do well can be risky. Unless you have a specific investment hypothesis that one technology company will do much better than others, it might be better to hold on to a diversified portfolio of major technology companies.
Investing In Technology Companies Via ETFs
Building a diversified portfolio on your own can be tedious and expensive. Having to buy ten or more technology stocks and needing to monitor and rebalance your portfolio continuously would be unrealistic for many retail investors.
Besides investing in technology companies via a unit trust (i.e. mutual fund), one other method to gain access to a diversified portfolio of technology companies is to invest via an ETF. Doing so allows us to have a hands-off approach to investing in these technology companies since the fund managers will also be rebalancing the portfolio periodically.
The CSOP HST INDEX ETF is an ETF listed on the HKEX that tracks closely the performance of the Hang Seng TECH Index. However, for Singapore investors, this means facing foreign currency risk since the ETF is traded in HK Dollar. The total expense ratio for the ETF is 1.05% per annum (p.a.).
Lion-OCBC Securities Hang Seng TECH ETF Can Provide Investors With Exposure To Technology Companies Listed On HKEX
The good news for Singapore investors is that there will be a new ETF – the Lion-OCBC Securities Hang Seng TECH ETF (Stock code: HST/HSS) – that will be listed on the Singapore Exchange (SGX) from 10 December 2020 onwards.
Jointly launched by Lion Global and OCBC Securities (both of which are part of the OCBC Group), this will be the first ETF established locally on SGX that invests in technology companies. By investing in this ETF, investors will automatically be investing in a portfolio of the largest 30 technology stocks listed in Hong Kong via the SGX.
One significant advantage for Singapore investors is that the ETF can be traded in both Singapore Dollar and US Dollar. This allows investors to decide which currency they want to invest in and manage their own foreign currency exchange risk accordingly.
In addition, with a total expense ratio of just 0.68% p.a., investors will enjoy a cheaper expense ratio compared other similar ETFs.
Other advantages for the Lion-OCBC Securities Hang Seng TECH ETF (Lion-OSPL HSTECH) include the following.
- The ETF is classified as an Excluded Investment Product (EIP). This means that you can simply trade it straightaway without needing a Customer Account Review (CAR) certification, which many other foreign ETFs may require.
- Trading board lot size of 10 units. This makes the minimum investment a lot lower.
- Since ETFs traded on SGX can be kept in your CDP account, no custodian account and fees are required compared to buying ETFs on foreign exchanges.
Initial Offering Period (IOP) For Lion-OCBC Securities Hang Seng TECH ETF
The Lion-OCBC Securities Hang Seng TECH ETF (Lion-OSPL HSTECH) will be listed on 10 December 2020 (Stock code: HST SGD /HSS USD). This is when investors can start trading the ETF on the SGX on their own.
However, if you are keen to invest in the ETF before it’s listed on the SGX, you can participate in the Initial Offering Period (IOP). This is a period when the participating dealers including OCBC Securities, UOB Kay Hian, Philip Securities and iFast Financial will collect buy orders first from investors who wish to invest in the ETF before it’s officially listed on the exchange. Unlike the initial public offering (IPO) of stocks, investors who invest during the IOP will get full allotment of the ETF units they subscribe for.
The IOP for the Lion-OCBC Securities Hang Seng TECH ETF will take place from 23 November 2020 to 7 December 2020. For those who wish to subscribe to the ETF during the IOP, you can reach out to your trading representative to place your orders. You will need to place at least 5,000 units in a single order if you subscribe through OCBC Securities. The good news is that there is a promotion where you can enjoy a $0 commission from 23 November 2020 to 3 December 2020.
To find out more about the Lion-OCBC Securities Hang Seng TECH ETF, you can read up on more details here.
Here’s a quick infographic about the Lion-OCBC Securities Hang Seng TECH ETF:
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