Will US-China Stresss 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 financial 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 financial 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 current indices to supply a extra complete image of China’s rising know-how sector.
Corporations corresponding to Tencent, Alibaba and Meituanhave reshaped China’s service-oriented new financial system, accelerating a shift away from the previous infrastructure- and export-oriented development mannequin. Firms within the HSTECH have registered a lot quicker development charges in comparison with China’s GDP during the last 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 know-how corporations contributing greater than 70% of its weighting. Development companies are likely to have larger monetary efficiency multiples, such because the PE ratio, and decrease dividend yields. It’s because most of them reinvest earnings in know-how 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 thehigh 10 corporations in the NASDAQ 100, essentially the most adopted tech benchmark on the earth.
High 10 Shares within the HSTECH and NASDAQ 100
Supply: Bloomberg, DailyFX
It’s price noting that Eight out of the highest 10 HSTECH corporations are concerned within the so-called “platform financial system”. Which means that they purpose to attach shoppers, entrepreneurs, and the general public by way of digital platforms. These embrace food-delivery providers (Meituan), e-commerce (Alibaba and JD.COM), digital funds (Alipay, TenPay), quick 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 corporationsare centered on platforms – Amazon, Fb and Alphabet. Subsequently, the Nasdaq 100 is extra diversified and contains a wider vary of subsectors, corresponding to software program growth (Adobe, Microsoft), electrical automobiles (Tesla) and semiconductors (ASML).
STOCK PERFORMANCE, SECTOR OUTLOOK AND REGULATORY RISK
The bulk of HSTECHcorporations are development shares, which are likely to draw buyers whoprioritize capital positive aspects over dividend yield. Their efficiency will depend on varied components, together with the underlying macroeconomic backdrop, the businesses’ various enterprise fashions, and the regulatory surroundings they’re going through.
Most HSTECH element corporations reside in mainland China, supported by a increase in e-commerce, digital funds, meals supply and streaming media providers.Though they’vefared effectively within the final decade or so, the latest tightening of regulatory oversight from Beijing could 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 could dampen development prospects formeals supplyservice chief Meituan. With this in thoughts, market contributorswill probably be eager to watch any upcoming regulatorymodifications.
If you’re new to the Hong Kong inventory market, you may read our primer on the local benchmark Hang Sent Index (HSI)to spice up your data.
Cling Seng Tech Index is called “Nasdaq of Hong Kong”, so you may additionally examine how to trade the Nasdaq 100 to take your understanding to the subsequent stage.
Study extra about main world inventory indices by referring to our guides:
Last however not the least, obtain our free equities forecast to higher perceive future developments out there.