Those who follow the Hang Seng market will be aware there is a hefty weighting towards financial and IT stocks, creatingthe perfect scenario for FinTech. At the moment, there are 69 constituents of the Hang Seng index across a spread of sectors, although not a huge one. So how does this work out for execution only short-term/day traders?


The Hang Seng index


The Hang Seng index was launched on 24 November 1969 to represent the leading companies on the Hong Kong stock market. Over the last few years, there has been an expansion in the number of constituents and a change in the leading market sectors. As many execution-only traders will be aware, at this point, the leading weightings are held by:-


• AIA (8.15% of the index)
• HSBC Holdings (7.86%)
• Tencent (7.59%)
• BAB – SW (7.58%)
• Meituan – W (7.13%)


When you consider the size of these companies, trade execution and liquidity are not a problem. Execution-only daytraders will also know that the Hang Seng index will reflect any recovery in the wider economy. Consequently, as financial and IT companies are the leading lights, in theory, these share prices should benefit to the greatest extent.


On the flip side, as we saw recently, tech shares, in particular, tend to be hit when markets are struggling. However, this could potentially create trading opportunities for experienced execution-only day traders looking to short stock and buy back lower down.


Sector weightings Hang Seng index


It is essential to appreciate the sector weightings of the Hang Seng index to see which companies and sectors have the most influence. As of June 2022, the sector weightings were as follows (together with the number of constituents):-


• Financials 35.75% (11 constituents)
• Information technology 28.85% (8)
• Consumer discretionary 9.15% (11)
• Properties and construction 7.48% (12)
• Utilities 3.3% (5)
• Consumer staples 3.36% (6)
• Healthcare 3.24% (4)
• Energy 2.77% (3)
• Telecommunications 2.56% (2)
• Industrials 1.71% (4)
• Conglomerates 1.59% (2)
• Materials 0.16% (1)


Interestingly, of the 69 constituents, 25 are from the Hong Kong ordinary index, 26 other Hong Kong-listed mainland companies and 8 "Red Chip" companies connected directly to China. So it would appear that the Hong Kong stock exchange “Connect” system is working well!


Compare and contrast with the FTSE 100


If we look at the top five weighted sectors in the Hang Seng index, compared to the FTSE 100, the results are startling:-


Hang Seng index


• Financials 35.75%
• Information technology 28.85%
• Consumer discretionary 9.15%
• Properties and construction 7.48%
• Utilities 3.3%


FTSE 100 index


• Consumer staples 17.91%
• Financials 17.82%
• Materials 13.39%
• Industrials 12.16%
• Healthcare 11.73%


The IT weighting of the FTSE 100 index is an underwhelming 1.41% compared to 28.85% on the Hang Seng index.


Trade execution services


Execution-only traders focusing on the Far East will be well aware of the impressive low latency execution-only services now available. We have seen considerable technological developments and phenomenal speed improvements resulting in low latency trade execution. This is the perfect environment for short-term/day traders looking to take advantage of market volatility. 


As one of the leading lights in the Hang Seng index, the IT sector seems to attract more than its fair share of execution-only traders!

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