Hang Seng Indexes has unveiled a new index that market participants are likening to the technology-focused Nasdaq Composite.
The newly unveiled Hang Seng TECH Index is likely to feature Alibaba prominently.
The Hang Seng TECH Index will track 30 of the largest technology growth companies listed on the Stock Exchange of Hong Kong.
To be eligible for inclusion, a company must have significant exposure to internet, fintech, cloud computing, e-commerce, or digital technology themes.
In addition, it must be a technology-enabled business (e.g. internet or mobile platform) or have an R&D expenses-to-revenue ratio that is greater than or equal to 5%, or revenue growth that is greater than or equal to 10%.
Only companies incorporated in Greater China (i.e. mainland China, Hong Kong, Macau or Taiwan) and listed on the Main Board of the HKEX will be eligible for selection.
The 30 largest companies that meet these criteria will be selected to form the index with constituents weighted by free-float-adjusted market capitalisation subject to an 8% cap on individual securities.
Constituents will be reviewed and rebalanced quarterly. Major positions are likely to include well-known names such as Alibaba, Tencent, Meituan Dianping, JD.com, NetEase, and Xiaomi.
The index methodology incorporates a ‘Fast Entry Rule’ which facilitates the speedy inclusion of newly listed companies within the technology space that would rank within the top 10 of the existing constituents by market capitalisation on their first day of trading.
This mechanism is likely to deliver fast-tracked inclusion for financial technology giant Ant Financial should it choose to list in Hong Kong, as is hotly tipped.
Commenting on the launch, Anita Mo, Deputy Chief Executive Officer of Hang Seng Indexes Company, said, “In view of the rapid blossoming of new businesses in the technology sector and the increasing number of technology companies that are listed in Hong Kong, we developed the Hang Seng TECH Index to meet the fast-growing interest in this investment theme among investors.”
She added, “The index aims to reflect the performance of sizeable companies in this sector and to facilitate the development of various index-linked products, including funds and derivatives. We believe that this new index could join the Hang Seng Index and the Hang Seng China Enterprises Index to become one of our flagship indexes.”
The index will be calculated and disseminated in real-time at two-second intervals.
According to back-test data, it would have achieved significant returns of 36.2% and 35.3% for the full year of 2019 and the first half of 2020 respectively.
The index will undoubtedly be on the radar of product development teams at ETF issuers.