Will US-China Rigiditys Spur a Hong Kong IPO Wave? Introducing the Cling Seng Tech Index
The Cling Seng Tech Index (HSTECH) – dubbed“Hong Kong’s Nasdaq” by market-watchers – represents China’s quick rising ‘new economic system’. It’s comprised of many famend tech companies, corresponding to Tencent and Alibaba.
WHAT IS HANG SENG TECH INDEX – AN INTRODUCTION
Launched on 27 July 2020, the Cling Seng Tech Index (HSTECH) is madeup of the 30 largest tech shares listed in Hong Kong. It represents China’s quick rising ‘new economic system’ and rides the tailwind of a rising variety of IPOs and secondary listings in Hong Kong amid US-China commerce tensions. Stricter itemizing guidelines imposed by US regulators in 2020-2021 prompted Chinese language tech companies to contemplate Hong Kong instead venue to boost capital.
HSTECH acts as a market bellwether and fills a structural hole amongst present indices to supply a extra complete image of China’s rising expertise sector.
Companies corresponding to Tencent, Alibaba and Meituanhave reshaped China’s service-oriented new economic system, accelerating a shift away from the outdated infrastructure- and export-oriented development mannequin. Corporations within the HSTECH have registered a lot quicker development charges in comparison with China’s GDP over the past 4 years (chart under).
HSTECH Revenue Growth vs China GDP Growth
Supply: Bloomberg, DailyFX
HANG SENG TECH INDEX VS. HANG SENG INDEX
The Cling Seng Tech Index (HSTECH) is a freefloat, market capitalization weighted index. It applies an 8% weighting cap on particular person constituent and is reviewed and rebalanced quarterly.
HSTECH is a tech-heavy benchmark, with info expertise firms contributing greater than 70% of its weighting. Development companies are inclined to have increased monetary efficiency multiples, such because the PE ratio, and decrease dividend yields. It’s because most of them reinvest earnings in expertise re-development and gaining market share. These distinctive options distinguish HSTECH from the Cling Seng Index (HSI), which is essentially the most extensively used benchmark for the broader Hong Kong inventory market. The key variations are illustrated under.
Supply: hsi.com.hk (as of June 2021)
TOP CONSTITUENTS AND WHAT THEY DO
The top 10 constituents in HSTECH are listed as comply with.We can examine them with theprime 10 firms in the NASDAQ 100, essentially the most adopted tech benchmark on the planet.
Prime 10 Shares within the HSTECH and NASDAQ 100
Supply: Bloomberg, DailyFX
It’s value noting that Eight out of the highest 10 HSTECH firms are concerned within the so-called “platform economic system”. Which means they goal to attach shoppers, entrepreneurs, and the general public by way of digital platforms. These embody food-delivery providers (Meituan), e-commerce (Alibaba and JD.COM), digital funds (Alipay, TenPay), brief movies (Kuaishou), communications (WeChat), and healthcare (JD Well being and Ali Well being). The remaining two – Sunny Optical and SMIC – are doing high-tech manufacturing associated to smartphone gadgets and semiconductors, respectively.
Against this, solely 3 of the highest 10 Nasdaq 100 firmsare targeted on platforms – Amazon, Fb and Alphabet. Due to this fact, the Nasdaq 100 is extra diversified and includes a wider vary of subsectors, corresponding to software program growth (Adobe, Microsoft), electrical autos (Tesla) and semiconductors (ASML).
STOCK PERFORMANCE, SECTOR OUTLOOK AND REGULATORY RISK
The bulk of HSTECHfirms are development shares, which are inclined to draw buyers whoprioritize capital beneficial properties over dividend yield. Their efficiency will depend on varied elements, together with the underlying macroeconomic backdrop, the businesses’ various enterprise fashions, and the regulatory atmosphere they’re dealing with.
Most HSTECH element firms reside in mainland China, supported by a increase in e-commerce, digital funds, meals supply and streaming media providers.Though they’vefared nicely within the final decade or so, the latest tightening of regulatory oversight from Beijing might forged a shadow over the outlook going ahead.
For instance, Alibaba was fined US$2.Eight billion in April 2021 amid Beijing’s sweeping anti–monopoly marketing campaign, placing regulatory threat within the highlight. Coverage makers additionally got here up with a minimal wage coverage for employees, which might dampen development prospects formeals supplyservice chief Meituan. With this in thoughts, market individualswill probably be eager to watch any upcoming regulatoryadjustments.
In case you are new to the Hong Kong inventory market, you’ll be able to learn our primer on the native benchmark Cling Despatched Index (HSI)to spice up your data.
Cling Seng Tech Index is named “Nasdaq of Hong Kong”, so you’ll be able to additionally examine how to trade the Nasdaq 100 to take your understanding to the following stage.
Be taught extra about main world inventory indices by referring to our guides:
- What’s S&P 500? A Information to the S&P 500 Index
- The Dow Jones: What’s it & Why is it Related to Merchants?
- What’s DAX 30? A Dealer’s Information to the DAX.
Last however not the least, obtain our free equities forecast to raised perceive future traits out there.
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