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Understanding the Hang Seng TECH Index – A Collection of the Biggest Chinese Technology Stocks

After a torrid 2022, will big Chinese technology firms bounce back in 2023?


When we think of China’s technology stocks, we think of the likes of Tencent Holdings Ltd (HKEX: 700) and Alibaba Group Holding Ltd (HKEX: 9988).

That’s because they were among the pioneers in the fast-growing Chinese tech space. However, since they’ve matured, there has been a whole host of innovative and hyper-growth tech coming out of China.

These companies have also become large in their own right, with market capitalisations that are measured in the tens of billions of US Dollars.

So, for investors who want exposure to this burgeoning tech ecosystem in China, it makes sense to come up with an index of these listed firms.

That’s exactly what the Hang Seng TECH Index in Hong Kong does. Here’s everything investors need to know about this relatively new index.

China’s 30 Largest Tech Firms

The Hang Seng TECH Index was launched in late July 2020, with the aim of tracking 30 of the largest China technology stocks listed in Hong Kong.

In fact, according to the press release by the Hang Seng Indexes Company – prior to the launch of the Hang Seng TECH Index – back-tested data showed that the index would have achieved sizable positive returns of 36.2% in 2019 and 35.3% in the first half of 2020.

The Hang Seng TECH Index went on to scale new highs in January 2021 but is now down over 50% from those highs.

That came as a crackdown by Chinese regulators on technology companies in the country got underway in early 2021.

However, more recently, these companies have staged a strong rebound as China reopens from its Covid-19 lockdowns and with investors optimistic that the regulatory crackdown is now over.

Ultimately, though, the Hang Seng TECH Index is about drawing new money into products that can track the index – namely exchange-traded funds (ETFs).

Capturing “Homecoming” Listings

It’s no secret that there are tensions between the US and China. That’s one big reason why investors have been seeing more and more Chinese tech firms listed in the US carry out “homecoming” secondary listings in Hong Kong.

This is a trend that has picked up pace in recent years as talk of de-listings of Chinese companies in the US continued to simmer. That caused a lot of uncertainty – for both professional and retail investors – who wanted a “safe” listing destination for China’s largest tech firms.

Hong Kong, with its open capital markets and a city that is also a part of China, provided the ideal answer. After Alibaba carried out a secondary listing in Hong Kong in November 2019, many other Chinese tech companies have followed suit.

In fact, many which aren’t weren’t even public before are bypassing the US stock market and just opting to list in Hong Kong only. One great example of this is JD Health International Inc (HKEX: 6618), a large telemedicine provider, which carried out its Hong Kong IPO in December 2020.

The company is now the seventh-largest constituent of the Hang Seng TECH Index, with a 4.9% weighting.

The largest company in the index – Kuaishou Technology (HKEX: 1024) – only listed in Hong Kong in February 2021 and chose the city as its sole listing destination.

As of December 2022, Kuaishou boasts a 9.3% weighting in the Hang Seng TECH Index.

Source

ETFs That Track The Hang Seng TECH Index

For most investors, ETFs are an easy option to access the Hang Seng TECH Index. In Hong Kong, there are two main options for investors.

By far the largest, in terms of market turnover and assets under management (AUM) is the CSOP Hang Seng TECH Index ETF (HKEX: 3033). It has a total NAV of HK$22.3 billion and a healthy average daily trading value of around HK$2.6 billion.

However, its expense ratio is high at 1.06% so this is an ETF that may be preferred by those of us looking to trade the index over the short term.

The alternative option is the iShares Hang Seng Tech ETF (HKEX: 3067) which has a total NAV of HK$12.8 billion and an average daily trading value of HK$261.8 million. The iShares Hang Seng TECH ETF in Hong Kong has a much lower expense ratio than the CSOP one, though, as it comes in at 0.25%. For long-term, buy-and-hold investors, this seems to be the more obvious choice.

On the Singapore Exchange, we can also invest in the Hang Seng Tech ETF via the Lion-OCBC Securities Hang Seng TECH  ETF (SGX: HST/HSS). On the SGX, the ETF is available in both the SGD and USD and has a total expense ratio of 0.68% p.a.

Read Also: How You Can Invest In Technology Stocks Such As Alibaba, Tencent & Xiaomi Through The Lion-OCBC Securities Hang Seng TECH ETF

Focusing On The Future Of China Tech

If you’re a believer in the future of China’s technology ecosystem, then the Hang Seng TECH Index provides a great avenue for exposure to it. That’s down to a number of reasons, outlined above. Yet as more and more Chinese tech companies list in Hong Kong, this should see the Hang Seng TECH Index constantly shift in order to reflect the biggest and best tech companies China has to offer.

5 Reasons To Look At The Hong Kong Stock Market In 2023 (And How Singapore Investors Can Gain Exposure To Hong Kong Stocks)

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