The Hang Seng Composite Industry Index – Information Technology (HSIII) is a specialised subset of the broader Hang Seng Composite Index, designed to reflect the performance of technology companies listed on the Hong Kong Stock Exchange.
The index contains firms engaged in various industries, such as software and services, interactive media and services, online retailers and payment services, providing investors with a concentrated view of the technology landscape in Hong Kong and the wider Chinese market.
Unlike other sectors that may exhibit defensive characteristics, the technology segment is known for its dynamic growth and inherent volatility. The companies within this index are typically at the forefront of innovation, playing a role in driving digital transformation across various industries. The index, which was launched in 2015, is fixed at 30 constituents.
Hang Seng Composite Industry Index Information Technology (HSIII) Performance
Despite their counterparts in the US performing extremely well over the last few years and the index including several well-known stocks, barring a couple of brief rallies, the HSIII has struggled, declining since 2021. It hit an all-time low in January 2024 but has been steadily rising since, suggesting sustained upside may be on the cards.
| Period | Total Return |
|---|---|
| 1-Year Return | +40.58% |
| 3-Year Return | -30.51% |
| 5-Year Return | -29.03% |
| 10-Year Return | – |
Hang Seng Composite Industry Index – Information Technology Top 10 Companies
The index is reviewed half yearly and rebalanced quarterly.
| Company | Weighting |
|---|---|
| Tencent | 12.72% |
| Alibaba | 12.04% |
| JD.com | 11.49% |
| Meituan | 11.31% |
| Kuaishou | 10.49% |
| NetEase | 10.42% |
| Baidu | 6.37% |
| BiliBili | 4.56% |
| Sensetime | 3.99% |
| Kingsoft | 3.43% |
Hong Kong/China Tech Forecast
The Bull Argument: Despite the decline, optimists argue that the technology sector in the region will prosper over the long term, driven by increasing digitalisation and the growing demand for innovative IT solutions. Advancements in areas such as cloud computing, artificial intelligence, and 5G are expected to bolster the performance of the companies within the index. The recent emergence of DeepSeek's AI model may provide a boost to the sector in the region and spur further innovation. Moreover, Hong Kong’s strategic position as a financial gateway to China enhances its role in global technology markets.
The Bear Argument: However, there are still significant headwinds that can impact the sector's growth in the near term. Trump's tariffs and the export restrictions targeting China's semiconductor sector mean there are hurdles to overcome. Something which DeepSeek claims to have done. Given the potential headwinds that specifically impact Hong Kong and China, as well as geopolitical concerns, market volatility could dampen returns. Furthermore, concerns over global supply chain disruptions, potential regulatory changes, and intensifying competition in the technology space may pose risks to sustained growth.
Our View: Of course, many see tech stocks and expect significant growth, but it hasn't been straightforward for the Hang Seng Composite Information Technology Index or the Hong Kong stock market overall, which has (as of January 2025, been grappling with a persistent downturn. While the sector overall provides a targeted investment avenue into one of the most rapidly evolving sectors and is known for its robust growth potential, investors should be prepared for its higher volatility and understand the current headwinds impacting the market, which includes, as mentioned above, the uncertainty surrounding US President Trump's policy towards China.
Who Should Invest in Hong Kong/Chinese Technology Stocks?
Investors considering the sector may look to ETFs such as the iShares Hang Seng TECH ETF, the Hang Seng TECH Index ETF, the Global X Hang Seng TECH ETF, and the KraneShares Hang Seng TECH ETF.
Overall, investors should evaluate their individual goals and risk profiles to see if the sector is a good fit. The index is particularly appealing for:
- Growth-oriented investors: While growth has been lagging of late, in general, the sector is seen as one that experiences strong growth. As a result, those who aim to tap into the technological advancements and innovation within the region may see an opportunity.
- Tech enthusiasts: Investors with a keen interest in digital disruption and the evolution of IT services, hardware, and software.
- Risk-tolerant investors: Given the inherent volatility of tech stocks, the sector is better suited for those who can withstand short-term market swings.
Long-term investors: Investors with a long investment horizon may prefer the sector, especially given the current levels, as it may be seen as a potential turnaround story.
