The Hang Seng Stock Classification System

The Hang Seng Stock Classification System is a comprehensive system designed for the Hong Kong stock market by HSI Services Limited. It reflects the stock performance in different sectors. It caters for the unique characteristics of the Hong Kong stock market and maintains the international compatibility with a mapping to the FTSE Global Classification System, which is compiled and administered by FTSE International Limited.

General Classification Guidelines:

i) The sales revenue arising from each business area of a company is the primary parameter of stock classification, and the net profit will also be taken into consideration to determine whether that company's business runs well.

ii) A company will be classified into different sectors according to its majority source of sales revenue.

iii) Re-classification of a stock's Industry Sector will occur once the company's business has undergone a major change, such as, substantial merger or acquisition.

Industry Sectors:

* Oil & Resources (資源礦產業)
* Industrial Goods (工業製品業)
* Consumer Goods (消費品製造業)
* Services (服務業)
* Utilities (公共事業)
* Financials (金融業)
* Properties & Construction (地產建築業)
* Information Technology (資訊科技業)
* Conglomerates (綜合企業)

Source of Information

The classification of each stock is based on the information available to the public, for examples the annual reports and company announcements.

[edit] Selection Criteria for the HSI Constituent Stocks

HSI constituent stocks are selected with the use of extensive analysis, together with external consultation. To be qualified for selection, a company:

* must be among those that comprise top 90% of the total market value of all ordinary shares;
* must be among those that comprise top 90% of the total turnover on the Stock Exchange of Hong Kong Limited "SEHK" (香港交易所);
* should have a listing history of 24 months; and
* should not be a foreign company as defined by the SEHK.

Among the eligible candidates, final selections are based on their:

* market capitalisation and turnover rankings;
* representation of the respective sub-sectors within HSI; and
* financial performance.

[edit] Calculation Formula for HSI

The current Hang Seng Index is calculated from this formula:

\textrm{Current~Index}= \frac{\sum\textrm{[}\textrm{P(t)}\times\textrm{IS}\times\textrm{FAF}\times\textrm{CF}\textrm{]}}{\sum\textrm{[}\textrm{P(t-1)}\times\textrm{IS}\times\textrm{FAF}\times\textrm{CF}\textrm{]}} \times \textrm{Closing~Index}

Descriptions on parameters:

* P(t)：Current Price at Day t
* P(t-1)：Closing Price at Day (t-1)
* IS：Issued Shares
* FAF：Freefloat-adjusted Factor, which is between 0 and 1, adjusted every six months
* CF：Cap Factor, which is between 0 and 1, adjusted every six months


[edit] Daily Reports for HSI

Investors in Asian markets monitor the following reports for investment activities:

* Hang Seng Indexes Daily Bulletin
* Hang Seng Index (HSI) Constituent Stocks Performance
* Hang Seng Composite Index Series Constituent Stocks Performance
* Index Performance Summary

[edit] Representativeness of the HSI

The representativeness of the HSI can be studied by the turnover of the whole stock market and by how much its market capitalisation covers. The aggregate market value of the HSI constituent stocks is maintained at approximately 70% of the total market value. This coverage ratio is a positive sign when compared with major overseas stock indices.

The representativeness of the HSI can also be observed by its resemblance with the movements of the All Ordinaries Index (AOI) compiled by the SEHK, which includes all listed stocks on the SEHK.

[edit] Other related Hang Seng stock indexes

* Hang Seng Composite Index Series (恒生綜合指數)
* Hang Seng Composite Industry Indexes (恒生綜合行業指數)
* Hang Seng Freefloat Index (恒指及富時指數)
* Hang Seng London Reference Index (恒生倫敦參考指數)
* Hang Seng Asia Index (恒生亞洲指數)

[edit] External links

* HSI Services - Company website
* Tracker Fund of HK - Link to the websites of constituent companies of HSI
* Changes in the constituent stocks of the HSI
* HKEx - Hong Kong Exchanges and Clearing Limited (HKEx)
* HKMA - Hong Kong Monetary Authority
* FSB - Financial Services Bureau
* Quotes of Hang Seng Index - Quotes of Hang Seng Index
* HK stocks realtime quotes - HK stocks realtime quotes
* Hongkong: Hang Seng Index - Hongkong: Hang Seng Index