The Hang Seng Index operates as a free-float, cap-weighted index with a wide selection of prized companies from the Hong Kong Stock Exchange. There are 4 indices within the Hang Seng and these include: Properties, Commerce & Industry, Utilities and Finance. The index was opened with a base level of 100 over 50 years ago. Naturally, this is one of many Asian stock markets that have been crushed by the Chinese equities meltdown of August and September. When the Shanghai Composite Index and the Shenzhen Index plunged recently, the Hang Seng came in for some serious tap.

The UBS Group AG revised its target level for the Hang Seng  25% lower  on the back of weak economic data and steep declines in tourism to the territory. In terms of performance, the Hang Seng has featured as the world’s worst performer last quarter. Traders have been placing put options on many Asian equities markets since Black Monday in China. The reverberations of that market downturn continue to this day, despite a slight uptick in economic performance.

Updated Key China Metrics

·         GDP per capita of  $3,866

·         Unemployment Rate of 4.04%

·         Inflation Rate of 2%

·         CPI of 102

·         Interest Rate of 4.6%

·         Balance of Trade $60.2 billion

·         Non-Manufacturing PMI of 53.4

·         Consumer Confidence of 104

·         Retail Sales (Year-on-Year) 10.8

·         Business Confidence 49.8

·         Manufacturing PMI 47.2

·         Housing Index -2.3

For the most part, China’s figures are solid. However, the areas where the Chinese economy is facing mounting pressures include the latter three metrics. Business confidence, Manufacturing PMI and the Housing Index are all negative. These metrics have spurred an equities collapse in China which has filtered through onto the Hang Seng Index. That the rate of inflation in China is 2% is important; this marks the highest inflation rate in 12 months according to the National Bureau of Statistics in China. The release of China’s latest inflation rate exceeded the forecast of 1.7% and this dovetails with the governments quantitative easing program. Traders across the spectrum have been largely bearish on Hang Seng ETFs with majority put options in play.

High-Volume Stocks Traded on the Index

The Hang Seng is currently trading at 21,506.09 (+3.17%) as at October 5, 2015.  The index is made up of 50 components, or sub-indices. The most active stocks in the Hang Seng include: The Bank of China (BACHY), China Construction, ICBC, China Petroleum (SNPSNP), CNOOC, Petrochina, Sands China, AIA Group, China Overseas and Lenovo Group (LNVGY). The best performing stocks in the index include: Galaxy Entertainment Group Ltd, China Resources Ltd, China Overseas Land and Investment Ltd, China Mengniu Dairy Company Ltd, AIA Group Ltd, Sands China Ltd, China Resources Enterprise Ltd, China Merchants Holdings International Co, Ltd, and Ping An Insurance Group Co of China Ltd.  

The worst-performing companies in the index include the likes of: Henderson Land Development Co Ltd, Hang Lung Properties Ltd, Hong Kong & China Gas Ltd, Link REIT, Li & Fung Ltd and Sun Hung Kai Properties Ltd, among others. The Hang Seng Index rallied on Friday after the holiday in Hong Kong a day earlier. What helped this index was better-than-expected data from China in terms of manufacturing. However, the overall trend is bearish on stocks and high levels of volatility remain. Poor demand from China is plaguing global bourses and even though manufacturing growth beat expectations it remains a major source of concern.

Key Metrics from Hong Kong – Reasons to be Concerned

Hong Kong operates as a special administrative region of China after having been handed over by Britain. The month-on-month inflation rate declined by 2.43%, and the producer prices change declined by 2.7% for Q2, 2015. Of equal concern to traders and investors are negative capital flows. With some HKD -28,538 million in capital flows recorded in Q2, 2015 Hong Kong is under pressure.  Inventories are down (HKD -9,930M for Q2, 2015) and industrial production is 1.3% lower for Q2, 2015 too. For all these reasons, the approach that traders should take for the Hang Seng is bearish.  Put options are the dominant trend at this point in time.