Whereas most people in America have heard of the Dow Jones Industrial Average, few have any notion of what the hang seng index is. Just as the Dow is to America, so the Hang is to Asia. It is the capitalization-weighted index that serves as an indicator of the flow of trade amongst the largest of the companies on the Hong Kong market.
The HSI began in November of 1969. The task of compiling this index is the responsibility of the Hang Seng Indexes Company Ltd, where it is compiled and maintained. HSICL is owned and operated a major bank by the same name, one of the largest banks registered and listed in Hong Kong when measured by market capitalization.
There are strict criteria that govern the selection of the constituent stocks chosen by the HSI. In a nutshell, these companies comprise the majority of activity on the market in Hong Kong, representing at least 90% of their market control. That is the layman explanation.
Just like all the major markets in the world, the Index itself is arrived at by the application of a rather complex economics formula that is first calculated and then multiplied by the index calculation of the previous day. The mathematical formula itself can be found by a quick search on the internet.
The Index reports daily by way of their published bulletin and contains an overall performance summary as well. For serious students of the international markets, it is strongly suggested that they have more than just a basic understanding of the HSI. Hong Kong’s relationship with newly tapped markets and resources in what was formerly known as “Mainland China” are critical to global forecasts.
The HSI has served as a legendary silent partner in the modern economic era. Not so any more. China’s rise and the former British colony’s recent change of political status have brought the Hang Seng into the mainstream. So much so, that an ETF such as a Hang Seng ETF is being talked about.