A new index of Chinese technology stocks that trade in Hong Kong failed to impress investors on its debut, as the Asian finance hub seeks to drum up interest in a market that has become a global laggard.
The Hang Seng Tech index closed 1.3 per cent lower on Monday, its first day of trading, compared with a fall of 0.4 per cent in Hong Kong’s broader Hang Seng index.
But traders in the city said the new benchmark could lay the groundwork for the Hong Kong market’s shift away from property and finance stocks, whose value has been hit after months of political unrest. The tech index is heavily tilted toward high-growth, China-focused internet stocks including Alibaba and Meituan. It excludes the likes of HSBC and insurer AIA, two of the Hang Seng’s biggest components.
Hang Seng Indexes calculates that tech index stocks have risen 40 per cent so far this year, making it theoretically one of the world’s best performing markets. The Hang Seng has fallen 13 per cent this year against a backdrop of local political turmoil, US-China tensions and recurring coronavirus outbreaks.
Andy Maynard, a Hong Kong-based trader at investment bank China Renaissance, said the city’s index compilers had been slow to adjust as mainland technology companies have increasingly come to dominate the stock market.
Tech groups including JD.com and NetEase have raised billions of dollars via secondary share placements in Hong Kong this year as the Trump administration puts pressure on Chinese companies listed in New York.
But traders said some investors had bought shares in tech index stocks ahead of the benchmark’s launch on Monday and had opted to take profits on day one. Some pointed to a lack of products that follow the new index.
“Is there money actually tracking this index from day one? No, it’s too early,” Mr Maynard added. “But in time you can see funds launching either passive [investment products] or actively tracking the new tech index, without a shadow of a doubt.”
The technology index will make it easier for Hong Kong and investors elsewhere to gain broad exposure to China’s high-growth internet names, as well as boost market liquidity, according to William Yuen, an investment director with Invesco in Hong Kong.
That will become even more the case once ETFs and other products that track the new index become eligible for investment platforms that connect Hong Kong with bourses in mainland China, he added.
However, Mr Yuen believes international investors are unlikely to abandon China-focused investment benchmarks such as those compiled by MSCI in favour of Hang Seng’s offering.
Some Hong Kong brokers think the Tech index could also extend underperformance of the wider Hang Seng as more fund flows are eventually diverted from market laggards, such as the tycoon-owned conglomerates that have historically dominated the local economy.
“The tech index will outperform because investors don’t want to give too rich a valuation to the old economy companies,” said Dickie Wong, head of research at Hong Kong-based Kingston Securities. “That’s the main reason why the Hang Seng is always behind.”