Fund managers expect ETFs tracking Hang Seng Tech Index to take off as investors seek a piece of the red hot industry

The Hang Seng Tech Index, which debuts on Monday, will trigger fund managers to introduce ETFs as a short cut for investors to buy into tech stocks
New index that tracks the 30 largest tech stocks in Hong Kong is similar to the Nasdaq Composite Index

Hang Seng Index

Enoch Yiu

Published: 8:30am, 27 Jul 2020

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The new Hang Seng Tech Index will allow fund houses to introduce exchange traded funds (ETF) to track the tech sector and enable passive fund managers to invest in the booming sector and promote Hong Kong as a listing hub, according to fund managers.

Index compiler Hang Seng Indexes Company’s new gauge, which debuts on Monday, will track the performance of the largest 30 out of 163 tech companies listed in Hong Kong in terms of market capitalisation.

“The new index is crucial to allow fund managers to introduce more ETFs and other investment products to invest in tech companies,” said Bruno Lee, chairman of Hong Kong Investment Funds Association, which represents the fund management industry.

Lee said currently about a quarter of HKIFA’s members, including US giant BlackRock and many Chinese fund houses, have passive fund managers who focus on ETFs or other index fund tracking products.

“It will be more convenient for investors to buy into tech companies if there are more ETFs based on the new tech index,” Lee said. By buying an ETF unit investors are actually buying a basket of stocks that track a particular index.

He added that as tech stocks were performing strongly this year, it provides the perfect window of opportunity for asset managers to launch tech-focused ETFs, which he expects will be popular among investors.

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Based on simulation, the tech index, similar to the Nasdaq Composite Index in the US, would have risen 45.5 per cent this year through July 17, and 36 per cent in 2019, according to the index compiler. In comparison, the Nasdaq index rose 18.4 per cent in the same period and 35 per cent in 2019.

Alibaba Group Holding, which owns the South China Morning Post, and Tencent Holdings are the top two index constituents, while Meituan Dianping, Xiaomi and Sunny Optical complete the top five.

While Tencent and Sunny Optical are included in the benchmark Hang Seng Index, Alibaba, Meituan and Xiaomi, are not, which means most ETFs that track the main index are yet to cover these behemoths.

The new index comes at a crucial time as many US-listed mainland tech giants including Alibaba, JD.com and NetEase have returned “home” with a secondary listing in Hong Kong, with more expected to come. Last week, Ant Group unveiled a concurrent plan to seek a listing in Hong Kong and Shanghai, skipping the US.

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Globally, some US$6.3 trillion of ETFs and other index-tracking products are listed on stock exchanges. The Hong Kong stock exchange has 134 such products with a combined market cap of HK$311 billion (US$40.13 billion). Their average daily turnover stood at HK$7.1 billion in 2019.

“ETFs will be quickly set up using the new Hang Seng Tech Index,” said Stewart Aldcroft, chairman of Hong Kong pension company Cititrust. “It looks like an attractive proposition, and that makes it a good choice to benchmark.”

He added that the only downside is that the Hang Seng Indexes Company “have high minimum fees and this might limit who is willing to use it”.

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