A new index in Hong Kong focused on China’s technology giants, including Alibaba and Tencent, dropped over 1% on its first day of trading.
The Hang Seng Tech Index, which launched on Monday and tracks the 30 largest tech companies listed in Hong Kong, declined as the recent surge in stocks it tracks started to cool. Food delivery and online booking company Meituan Dianping and smartphone maker Xiaomi led the losses, with each declining 3%.
The index, which includes backdated prices, fell 1.3% on Monday.
The single-sector focus means investors need to brace for volatility, analysts said. However, the index breaks away from the city’s benchmark indexes, which are made up of old-economy stocks such as banks and insurers, and paves the way for passive investors and exchange traded funds to tap the biggest gainers in the Hong Kong market, they said.
Based on prices so far this year, the tech gauge would have surged 46%, versus a loss of more than 12% for the Hang Seng Index and a 16% gain for the Nasdaq composite index.
“The index launched on a day when investors decided to sell some of the constituents and take some profit,” Hao Hong, head of research at BOCOM International in Hong Kong, said. “The tepid open notwithstanding, it is a landmark development for Hong Kong and investors. The importance of the index will only increase.”
Hong Kong is set to host more big name technology companies in the coming months, including Ant Group, the world’s most valuable fintech company, which has picked the city for a listing. Companies already traded on American exchanges are also considering a listing in Hong Kong amid rising tensions between Washington and Beijing. New members could be added to the index on a fast-track basis 10 days after their listing, according to the index’s administrator.
Chinese technology stocks have been the biggest winners in Hong Kong amid the coronavirus-induced lockdowns, with the Meituan climbing 81% and Tencent up over 40% this year.
That rise, along with the likelihood of more American-traded Chinese stocks seeking a listing closer home, has led to competition between exchanges.
Last week, the STAR Market in Shanghai launched its first index, called the STAR 50 Index, also focusing on Chinese technology stocks. However, BOCOM’s Hong said the two indexes will remain quite different for now as the main constituents are not the same.
The STAR 50 index includes only stocks that have been listed on STAR for at least six of its 12-month history and includes few names that would be familiar to foreign investors.
Hong Kong’s new index is also expected to facilitate the development of various index-linked products, including funds and derivatives, boosting the fortunes of Hong Kong Exchanges and Clearing. Citigroup analysts led by Yafei Tan estimated the new index, along with associated products could drive low-to-mid single digit earnings growth for the exchange, which last week reclaimed the crown as the most valuable global bourse. HKEX’s share price has climbed 39% on the back of surging listings and trading volumes.
The exchange also snatched a derivatives licensing agreement to offer futures and options contracts based on 37 of MSCI’s equities indexes away from its rival, Singapore Exchange, after 23 years.
The Tech Index “is another exciting step forward in Hong Kong’s push to be a primary nexus for technology investment in the Asia-Pacific region,” said Oliver Cox, portfolio manager for emerging market and Asia-Pacific equities at J.P. Morgan Asset Management. The index should “encourage the next wave of up-and-coming, innovative new technology companies to choose Hong Kong as an attractive venue for raising capital.”