Hang Seng Investment Management is set to launch a new ETF in Hong Kong providing exposure to Chinese companies that are representative of the country’s ‘New Economy’.
Hang Seng Investment Management is set to launch a China ‘New Economy’ ETF on HKEX.
The Hang Seng China New Economy Index ETF (3176 HK) is scheduled to list on the Stock Exchange of Hong Kong on Thursday 11 November.
China’s New Economy reflects the country’s transition away from manufacturing and heavy industries towards a consumption and services-led growth model.
The term generally encompasses high-growth, often technology-enabled companies that are typically operating within advanced or modernized industries belonging to the consumer discretionary, communication services, healthcare, and information technology sectors.
Firms operating within such industries are anticipated to continue growing at a faster rate than those within the so-called ‘Old Economy’ owing to several tailwinds including government subsidization, an expanding middle class, changing consumption patterns, and broad technological innovation.
Investment process
The ETF will track the Hang Seng China New Economy Index which selects its constituents from a universe of stocks that includes H-shares, Red-chips, and P-chips eligible for Southbound trading under the Stock Connect link and that are also constituents of the Hang Seng Composite Index, as well as A-shares eligible for Northbound trading under Stock Connect and US-listed companies incorporated in or headquartered in mainland China.
Companies must also satisfy turnover requirements including a six-month average daily traded value of HKD 20 million for H-shares/Red-chips/P-chips, RMB 20 million for A-shares, and USD 3 million for US-listed stocks.
The index harnesses the Hang Seng Industry Classification System (HSICS) to screen for companies operating within certain industries considered to belong to the New Economy.
Eligible industries include automobiles, household goods & electronics, travel & leisure, media & entertainment, and specialty retail (all of which are part of the consumer discretionary sector); industrial engineering, environmental engineering, new energy materials, and aerospace & defense (industrials sector); IT hardware, software & services, and semiconductors (information technology sector); and pharmaceuticals, biotechnology, and healthcare equipment (healthcare sector).
Utility companies that are primarily engaged in alternative or renewable energy are also eligible, as are certain firms classified to the consumer staples and financials sectors that primarily perform their operations using the internet.
The index methodology selects the 100 largest eligible companies, based on their average market capitalizations over the past 12 months, and weights them by float-adjusted market capitalization subject to a single stock cap of 10%. Reconstitution and rebalancing occur semi-annually with buffer rules helping to limit unnecessary turnover.
Approximately half of the index by weight is presently allocated to A-shares with the remaining half approximately equally split between US and Hong Kong listings.
Stocks from the information technology sector dominate, representing just under half (46.8%) of the index by weight with the next-largest sector exposures being consumer discretionary (18.5%), industrials (14.6%), and healthcare (13.4%).
Notable positions include Tencent (9.9%), Alibaba (9.2%), Meituan (5.9%), CATL (4.5%), and JD.com (2.9%).
The ETF will come with a management fee of 0.25% and estimated ongoing charges over a year of 0.38%.
(Index constituent data as of September month-end).