Hong Kong’s New Hang Seng Tech Stock Index Has Rocky Debut

Hong Kong’s new technology stock benchmark, the Hang Seng Tech Index, had a disappointing debut on Monday, falling 1.3%, while the broader Hang Seng Index slipped 0.4%.

Designed to function as a Nasdaq-type vehicle, the Tech index tracks the performance of 30 tech stocks that trade in Hong Kong. The new index includes such heavyweights as Chinese conglomerates Alibaba Group (BABA) and Tencent Holdings Ltd. (TCEHY) as well as food delivery giant Meituan Dianping and consumer electronics firm Xiaomi Corp.

Tencent has gained 38% this year while Meituan has surged 82%.

“All the conditions are now ready for [the inclusion of] large China tech stocks whether in China or [those] already listed elsewhere,” Vincent Kwan, chief executive officer of index compiler Hang Seng Indexes Co., told Bloomberg on Monday.

More Chinese-based stocks may seek to trade in Hong Kong as the U.S. will likely make it more difficult for Chinese listings on American exchanges.

Gabriel Chan, head of investment services for Hong Kong at BNP Paribas Wealth Management, told the Wall Street Journal that many of the new index components showed strong gains last week prior to their inclusion in the index.

“A lot of the short-term optimism” was already reflected in their share prices ahead of Monday.

On a pro forma basis, the stocks in the Hang Seng Tech Index have soared 45.6% this year through Friday, nearly triple the gain of the Nasdaq Composite Index.

In contrast, the broader Hang Seng Index has fallen 12.4% through Friday, largely due to weak performance by ‘old economy’ companies like banks, insurers and property developers.

“Hong Kong is really embracing China’s new economy,” said Andy Maynard, managing director of equities sales trading at China Renaissance Securities.

Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong, told Bloomberg: “There are too many laggards in the [broader] Hang Seng Index. With overseas-listed Chinese firms deciding to list closer to home, the Hong Kong market falls short in terms of having a representative index for these stocks. This new index serves to fill this gap and drive capital flows.”

Companies based in Mainland China now account for 78% of Hong Kong’s total stock market capitalization, up from 67.5% at the end of 2018.

Bruno Lee, chairman of the Hong Kong Investment Funds Association, said he thinks the existence of the Hang Seng Tech Index could lead to the formation of exchange-traded funds which track its performance, thereby attracting more foreign investors.

“The launch of a tech index is a timely move,” he said.