Hang Seng eyes new index to track smaller ripples
Hang Seng Indexes will launch an alternative version of its benchmark index in the middle of the year to reflect more closely how smaller players are affecting the stock market.
Vincent Kwan, director and general manager of the company, said the alternative version would assign equal weighting to each HSI constituent but would not replace the blue-chip index. Weightings under the existing version, which comprises 48 Hong Kong and mainland companies, are based on each constituent's market capitalisation.
Kwan said the new version, expected to roll out in the middle of this year, would allow investors to track movements of smaller HSI constituent companies more accurately.
This would provide a more balance view of the stock market - an idea that had already attracted attention from fund managers and equity-linked fund (ETF) product providers, according to Kwan.
Separately, he said the constituents of the blue-chip index would be reviewed at the end of the year, and international companies such as Prada could be added in the index.
Brokers and traders expressed interest in the equally weighted version of the HSI, but warned it would probably be more volatile, reflecting the wider swings commonly seen in smaller stocks like clothing firm Esprit. They said the new index could be a good platform to develop derivative products such as warrants and callable bull/bear contracts, which have leveraged investments.
However, to succeed, it would require market acceptance of the new version, including developing a futures market based on the new index, the brokers and traders said.
'The equal-weight concept is very interesting,' said Simon Yung, director and head of warrant sales at Standard Chartered Bank.
'However, the existing Hang Seng Index is already very well-recognised. It will be very difficult and confusing for investors to benchmark against another version of the index, especially when the performances of two versions of HSI contradict each other,' he said.
Kwan also unveiled plans to update its indices more often, including updating the Hang Seng Index and possibly its China Enterprises Index every two seconds starting from 2013.
Kwan said he expected these quicker updates on all Hang Seng indexes by the end of the first quarter of next year, and that a test run of the computing systems would start in the second half of this year.
Brokers said the change would mainly affect institutional investors rather than retail investors. It would enable swifter reactions from smaller firms and hedge funds, which lack bigger firms' trading technology.
The Hang Seng Index is currently updated every 15 seconds, compared with real-time updates for the FTSE 100 index in London. The Dow Jones Industrial Average is updated every two seconds, while the S&P 100 and S&P 500 indices are updated every five seconds.
