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Hong Kong: HANG SENG INDEX (.HSI) Set to Embrace Change

Hong Kong: HANG SENG INDEX (.HSI) Set to Embrace Change

Investors may soon no longer have to put up with dismal underperformance

The 50-year old Hang Seng Index is poised to embrace change, and it could not come soon enough for investors forced to put up with years of dismal underperformance.

On Monday (18 May) at around 4:30 pm in Hong Kong, the compiler of the gauge is expected to announce whether companies with secondary listings and unequal voting rights will be included for the first time, namely Alibaba Group Holding Ltd. Doing so would open the door to transforming the Hang Seng from a gauge overstuffed with banks and insurers to one that better reflects the technological dynamism of China’s economy.

Alibaba – one of China’s most valuable companies – launched a secondary listing in Hong Kong in November. Another potential candidate for inclusion is Meituan Dianping, China’s largest food-delivery website, while JD.com Inc is considering a secondary listing of its own in the city. With almost USD30b of pension-fund assets and exchange-traded funds tracking the gauge as of December, such a change could spur a flood of local share sales by US-listed firms.

About half of the total weighting of the Hang Seng Index is in financial firms, compared with about 15% on average for benchmarks in Europe, the US, Japan, and mainland China, according to data compiled by Bloomberg. The gauge has gained 1.7% a year on average in the past decade, vs 5.2% for the MSCI All-Country World Index. In January, the Hang Seng approached its lowest level relative to the MSCI measure since 2004.

Price Performance

Shayne Heffernan Trade Idea

“The process of adding the likes of Alibaba may take some time, however. “In order to reduce the one-off impact on the market, the index may propose adding the weight of Alibaba gradually,” said Shayne Heffernan. Alibaba is the biggest company listed in Hong Kong by market cap and is the second most actively traded stock in the past 30 days, just after the Hang Seng Index’s largest component Tencent Holdings Ltd.”

The addition would raise the Hang Seng Index’s forward price-to-earnings ratio to about 12 from the current 11, making it more expensive than Shanghai Composite Index, data show. 

The Hang Seng Index dipped 0.14% to 23,797.47 on Friday while the Shanghai Composite Index was little changed at 2,868.46.

Why This Matters

The benchmark in the Asian financial hub is dominated by financial services institutions and conglomerates such as HSBC and CK Hutchison.

There is a perception that local indices like Hang Seng aren’t necessarily reflective of the opportunity set available out there.

(Inclusion) would be a reflection of how the Chinese markets, companies have developed.

Companies from Greater China with a secondary listing in Hong Kong and those with two classes of shares carrying different voting rights will be included in the index, starting from August, with a weighting cap of 5%, the index provider said in a statement.

Hong Kong’s stock exchange started allowing companies to list with two classes of shares in 2018, and also streamlined secondary listings by Chinese companies listed overseas, enabling the three tech companies’ entry into the market.

Alibaba, Xiaomi and Meituan – the only companies with dual-class or equivalent structures in Hong Kong – are typically among the top five stocks traded there by value each month.

Adding the three companies could drive passive fund flows of $3.7 billion into their shares, Heffx analysts said in a note before the announcement. The tech trio are also eligible to join the Hang Seng China Enterprises Index.

Alibaba has a voting structure different from the other two. A small group of current and former senior managers can nominate a majority of its board. But it is likewise treated as a dual-class shares firm by the Hang Seng Indexes Company.

Technical Indicators

Overall, the bias in prices is: Downwards.

The projected upper bound is: 25,879.30.

The projected lower bound is: 22,773.50.

The projected closing price is: 24,326.40.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 7 rising windows in the last 50 candles–this makes the current rising window even more bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 39.8065. This is not an overbought or oversold reading. The last signal was a buy 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 53.24. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 36 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 70. This is not a topping or bottoming area. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 2 period(s) ago.

Rex Takasugi – TD Profile

HANG SENG INDEX closed up 428.801 at 24,363.570. Volume was 50% below average (consolidating) and Bollinger Bands were 60% narrower than normal.

Open         High         Low         Close         Volume
24,489.551   24,552.551   24,314.449  24,363.570    1,079,482,752
Technical Outlook
Short Term:        Neutral
Intermediate Term: Bullish
Long Term:         Bearish
Moving Averages: 10-period       50-period          200-period
Close:           24,130.19       23,930.17          26,174.78
Volatility:      21              42                 28
Volume:          1,470,542,336   2,454,424,832      1,859,759,488

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

HANG SENG INDEX gapped up today (bullish) on light volume. Possibility of a Common Gap which usually coincides with a lack of interest in the security. Common Gaps are fairly irrelevent for forecasting purposes. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.

HANG SENG INDEX is currently 6.9% below its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .HSI at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .HSI and have had this outlook for the last 23 periods.

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HEFFXhttp://www.heffx.com
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

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