Hang Seng Indexes has introduced inverse and leveraged variations of the Hang Seng TECH Index, its blockbuster Chinese technology sector index.
Hang Seng Indexes has rolled out inverse and leveraged versions of its popular Hang Seng TECH Index.
The Hang Seng TECH Short Index and Hang Seng TECH 2x Leveraged Index deliver -100% and 200% of the daily performance of the Hang Seng TECH Index, respectively.
The Hang Seng TECH was made available for licensing in July 2020 and has proved incredibly popular with asset managers and investors.
CSOP Asset Management, China Asset Management Company, Hang Seng Investment Management, and BlackRock have all launched ETFs based on the index in Hong Kong.
Collectively, these funds house over HK$9.6 billion ($1.2bn) in assets, with the iShares Hang Seng TECH ETF (9067 HK) the largest of these with $450m in assets under management. The iShares fund is also the cheapest with an expense ratio of 0.25%.
Singapore-based investors are anticipating the launch of their first Hang Seng TECH Index ETF with the Lion-OCBC Securities Hang Seng TECH ETF set to begin trading on Singapore Exchange on 10 December, with demand expected to be strong.
It is likely that ETFs based on the new inverse and leveraged indices would also attract significant interest, although any trader utilizing such a tool would need to be prepared for a rollercoaster ride given Chinese technology stocks are already inherently volatile – before the addition of gearing. The Hang Seng TECH Index has exhibited annualized volatility of 37.1%, notably higher than other widely followed Chinese benchmarks such as the regular Hang Seng Index (23.3%) and Hang Seng China Enterprises Index (23.8%).
Methodology
The Hang Seng TECH Index consists of Greater China-incorporated stocks that have high business exposure to the internet, fintech, cloud computing, e-commerce, and digital technology themes.
Companies must either specifically be “technology-enabled” (i.e. operate primarily on an 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%.
The 30 largest stocks as ranked by market capitalization that meet these criteria are selected to form the index. Constituents are weighted by free-float market capitalization, subject to a cap of 8% on any individual stock.
As of October 2020, over two-thirds (68%) of the index was allocated to the information technology sector with modest allocations to industrials (12%), healthcare (11%), consumer discretionary (7%), and financials (2%).
Major positions include well-known Chinese names such as Xiaomi, Meituan Dianping, Alibaba, Tencent, Sunny Optical, JD.com. Other familiar holdings include Lenovo, NetEase, and Ping An Healthcare & Technology.
The index is reviewed on a quarterly basis but also includes a ‘Fast Entry Rule’ to facilitate fast-tracked inclusion for qualified IPOs that rank in the index’s top ten by market cap.