Hello Tigers,
As of the close of March 12, 2024, the Hang Seng Tech Index has surged by over 20% since February 1st, entering what's technically considered a bull market. After this significant rise, the Hang Seng Tech Index, which has been relatively obscure for over a year, is back in everyone's focus.
There's an old saying in the stock market: the most painful thing isn't losing money, but missing out.
Faced with such a market, should one stubbornly jump in or continue to wait and watch? At the end of this text, I'll give you a simple and scientifically-backed answer. But before that, let me explain what the Hang Seng Tech Index is.
1.What is the Hang Seng Tech Index?
A. Composition of the Hang Seng Tech Index
As of September 20, 2023, the Hang Seng Tech Index consists of 30 stocks, with a relatively high proportion of large-cap stocks.
Moreover, the top ten weighted stocks of the Hang Seng Tech Index account for a combined 70.05%, indicating a high level of concentration. Classified by Hang Seng's primary industry, the top ten constituent stocks are primarily from the information technology sector, covering various subsectors such as smartphone revenue, value-added services, and commercial retail within the internet industry.
The top ten heavily weighted stocks are also some well-known tech companies, such as NIO, Alibaba, JD.com, and Tencent Holdings.
In simple terms, compared to other indices, the Hang Seng Tech Index has a higher proportion of "technology" components, with most being industry leaders in China.
B. Valuation of the Hang Seng Tech Index
As of March 13, 2024, the five-year price-to-earnings ratio (P/E ratio) of the Hang Seng Tech Index stands at 18.07 times, placing it in the low threshold area; the five-year price-to-book ratio (P/B ratio) is 2.19 times, also in the low threshold area.
(Source: Tiger trade app)
(Source: Tiger trade app)
2.What are the advantages of the Hang Seng Tech Index?
A. Attractive Valuation
As seen from the above chart, whether it's the five-year price-to-earnings ratio (P/E ratio) or the price-to-book ratio (P/B ratio), the Hang Seng Tech Index remains in the low threshold range. In other words, both in terms of price and valuation, the Hang Seng Tech Index is quite inexpensive.
B. Strong Potential for Growth and Future Bullish Expectations
In addition to its attractive valuation, we also need to consider the potential for future growth after acquiring assets. So, what are the future bullish expectations for the Hang Seng Tech Index?
a. Greater Resilience of the Hang Seng Tech Index during Rate Hikes to Rate Cuts Cycles
Historical data shows that towards the end of Federal Reserve rate hikes, the Hang Seng Tech Index often achieves temporary excess returns. However, sustaining such excess returns over the long term is challenging. In the past three rounds of Federal Reserve rate hikes (within 1-2 months after the end of rate hikes), the Hang Seng Tech Index has generally obtained significant phase returns.
After the start of a rate cut cycle, the rebound of the Hang Seng Tech Index tends to be larger, making this period a golden opportunity for long positions in the Hang Seng Tech Index.
b. Strong Future Expectations for the Technology Industry
With the commercialization of GPT models, the technology sector has rapidly formed a new consensus: embracing AI.
As Nvidia's stock price continues to reach new highs, it seems that the AI feast is far from over. However, currently, the scale of AI users in China has not seen widespread growth. Therefore, competition between AI in China and the United States will continuously drive the development of large technology companies. Among them, large-cap companies primarily represented by the Hang Seng Tech Index will be more favored.
Large technology companies with independent research and development capabilities are expected to have a stronger future outlook.
3.How to Invest in the Hang Seng Tech Index?
A. Tracking ETFs for the Hang Seng Tech Index
One of the best ways to invest in the Hang Seng Tech Index is to purchase ETFs that track it. There are mainly two types:
a. Index ETFs
One of the most common ways is to invest in Hang Seng Index ETFs, such as the CSOP Hang Seng Tech (03033.HK) ETF. The advantage of buying index ETFs is minimal tracking error, along with relatively low fees.
(Source: Tiger trade app)
b. Leveraged Index ETFs
Of course, if you want to capture larger fluctuations, you can also consider leveraged index ETFs. For example, XL2 CSOP HS Tech (07226.HK) is a 2x leveraged ETF tracking the Hang Seng Tech Index.
(Source: Tiger trade app)
The advantage of these ETFs is that they amplify profit fluctuations. For instance, if the Hang Seng Tech Index rises by 2% today, your investment in XL2 CSOP HS Tech (07226.HK) will yield a 4% profit.
However, if the Hang Seng Tech Index declines by 2%, leveraged ETFs will also magnify losses, potentially resulting in a 4% unrealized loss for you.
Therefore, the choice between these two types of ETFs can be based on your risk preference!
B. The Correct Way to Invest in the Hang Seng Tech Index
At this stage, I recommend adopting a Auto-invest plan to invest in the Hang Seng Tech Index.
After a 20% surge, the Hang Seng Tech Index has risen too much in the short term; as investors, it's difficult to accurately time the market entry.
Instead, we can adopt a "slow and steady" approach by using dollar-cost averaging to invest in the Hang Seng Index. With this strategy, even if the Hang Seng Tech Index falls in the short term, we can continue to invest, lowering the average purchase cost and ultimately achieving decent returns.
The operation is also simple: open the "Tiger trade app," enter the ETF code in the "Quotes" interface. For example, enter "03033," click "Trade," then "Auto-invest," select the appropriate amount and frequency for investment.
(Source: Tiger trade app)
(Source: Tiger trade app)
I've already set up a Auto-invest plan, so why not join our money-making team now!
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