Trading The HK50 Index
You might have heard about Hong Kong in the news, recently they celebrated twenty years of “return to the motherland”. Before we discuss the HK50 index, it’s let’s briefly review the historical and political situation. You might be asking yourself, is Hong Kong a separate country or part of China?
In the strictest sense, Hong Kong is part of China, her official name being Hong Kong Special Administrative Region of the People’s Republic of China. Confusingly, Hong Kong has her own immigration policy, money, stock exchange, postage stamps, flag, etc. This peculiar arrangement is due to the fact that Hong Kong was a British colony from 1841 to 1997. The treaty on “return” stipulated that Hong Kong would continue to operate in a different fashion than most of China, known as “One country, two systems”.
The Hang Seng 50 (HK50 on the GoTrader MT4) has a market capitalization-weighted index of 50 of the largest companies that trade on the Hong Kong Exchange. These companies cover approximately 65% of its total market capitalization. Finance represents almost half of the index. An additional quarter is weighted in information technology, properties, and telecommunications.
As you can see in the weekly view below, HK50 recently broke the 25,000 point mark for the first time in nearly two years. From an all-time high in April 2015, it was last over 25,000 in July 2015. Continuing a rally from January 2016 which saw the index drop to a five year low.
Despite the fact that the index’s constituent companies are listed in Hong Kong, 55% of the companies are based in China. A meteoric rise from 5% in 1997, 25% in 2003 and an all-time high of 59% in 2009. HK50 is tied at the hip to the Chinese economy.
How tied is HK50 to mainland Chinese companies you ask?
On Tuesday July 4th shares suffered their worst day in 2017, falling 1.5%, representing the biggest one-day percentage fall since December 15th. Tencent, one of the ten most valuable companies in the world, headquartered in nearby Shenzhen and making up nearly 11% of the composite. Tumbled 4% relating to recent negative comments around its popular one-line game products, we should continue to see growth as China’s first-quarter GDP growth hit 6.9%, the highest level since the fall.
By: Samuel Hertz