The Hang Seng Index is one of the stock indices recognized internationally, like the Dow Jones and Nikkei indices. Even though many may not consider it to be on the same level as these indices, it still holds an important position and is monitored by investors and brokers all over the world. It is based in the Hong Kong stock market and provides information on Hong Kong’s largest companies. The companies which comprise the Hang Seng Index make up about two-thirds of Hong Kong’s market capitalization. It therefore gives valuable information on how well the Hong Kong market has been performing during a given period of time.
The Hang Seng Index, which was established in 1969, is weighted based on market capitalization. In other words, stocks are assessed and assigned weights based on their market value. Since the index is composed of large companies, it is the changes in stocks of these companies which have more impact on the index. This means that changes in very small companies, which may hardly have any impact on the market, are prevented from affecting the index. This in turn ensures that the index is maintained as a good gauge of market performance.
Several developments have taken place since the creation of the HIS in 1969. One of these is the division of the index into four main areas or sub-indices which started in 1985. In 2001, the Hang Seng Composite Index Series was established. This covers a wider range than the HSI, as it involves more than 90% of market capitalization in Hong Kong.