In page navigation

How to invest in Hang Seng index funds in 2023

Find out how to invest in the Hang Seng index, learn which trading platforms have the lowest fees, and what’s easiest for beginners.

By:

Updated: May 12, 2023

Listen

It only takes a few minutes to invest in the Hang Seng index. One of the simplest and most popular ways to invest is to buy shares in a Vanguard Hang Seng ETF through an online trading platform.

Where can I invest in the Hang Seng index?

According to our expert research, eToro is the best ETF broker to invest in Hang Seng index funds.

Both Hang Seng ETFs and Hang Seng CFDs are available to invest in through eToro .

Here are three more places to buy the Hang Seng, ranked according to their cost, security, and features.

How do I invest in the HSI index?

The easiest way is to sign up to a stock broker, open an investment account, and buy shares in an Hang Seng ETF or CFD. This guide explains how to do it:

Step 1. Sign up to eToro

We recommend using eToro to invest in Hang Seng. Sign up for a brokerage account and deposit some money. You may need to supply a form of photo ID to verify the account.

Step 2. Decide how to buy Hang Seng

This boils down to choosing between an Hang Seng ETF or CFD. ETFs are generally better suited to investors who want to passively track the Hang Seng’s performance. CFDs offer a greater range of trading options: you can use leverage, short the index, or buy and sell it outside of trading hours.

Step 3. Invest in the Hang Seng

Sign into your trading account and search for the Hang Seng. Hit the ‘buy’ button and enter the details of your purchase, such as how much you want to spend. Hit ‘buy’ again to execute the trade.

Step 4. Monitor your investment

When you buy a CFD, the trade goes through more or less instantly, and you’ll be able to see your new open position in your trading account. ETF purchases can take longer, and if you buy outside of traditional trading hours it won’t go through until the next morning.

Your trading account will show the price change in the Hang Seng since you bought it, so you can see your profit/loss at a glance. Use that information, along with your own research, to decide when to sell the Hang Seng and close your position, ideally at a profit!

The different ways to invest in the HSI

As we mentioned above, there are numerous ways to put your money into the Hang Seng. ETFs and CFDs are the simplest options for beginners, but there are alternatives. Here’s a brief overview of each option and who it’s best suited for.

Hang Seng ETFs

An ETF (exchange-traded fund) is an investment fund traded on a stock exchange, much like a stock. Exchange traded funds can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock market index.

A Hang Seng ETF is one way of investing in the Hang Seng. It’s simply an investment fund that mirrors the performance of the Hang Seng. When you buy shares in the fund, the value of your investment will rise or fall with the Hang Seng itself.

ETFs are ideal for new investors because they have a very low minimum investment. You can start with a few pounds and get exposure to some of the world’s largest companies. They’re also practical if you plan on trading the Hang Seng index, because you can buy or sell shares in the fund throughout the day.

Examples of popular HSI ETFs

iShares Core Hang Seng Index ETF (HSINH)
Lyxor Hong Kong UCITS ETF (HSI1N)

Hang Seng index funds

An index or mutual fund is an investment fund that aims to track the performance of a stock market index, such as the Hang Seng. It’s very similar to an ETF, in that there are low management fees and you can buy shares through your online broker.

However, there are a couple of differences. Hang Seng index funds are only priced at the end of each trading day, so you can buy or sell shares in the fund once per day. There may also be a higher barrier to entry, through a much larger minimum investment when you invest in Hang Seng index funds.

That means an Hang Seng mutual fund is better suited for long term investors with a higher initial budget, where the infrequent trading and barriers to entry are far less of an issue.

Examples of popular HSI index funds/mutual funds

Hang Seng Index Tracking Fund (HKD19.8932)

Hang Seng CFDs

CFDs (contracts for difference) are a way to speculate on Hang Seng price changes with more flexibility than if you use an ETF or index fund. A CFD is a ‘derivative’, which means it gets its value from the underlying asset – in this case the Hang Seng – but it’s separate from it.

As a result, CFDs can be leveraged, where you borrow money to multiply the size of the trade, or they can be used to go ‘short’, where you place a trade on the index to fall in value. You can also buy and sell them outside of regular trading hours.

All of this means Hang Seng CFDs offer the potential to outperform a fund that passively tracks the Hang Seng’s performance. Of course, you can also underperform it as well. Tools like leverage and shorting introduce a lot more risk, and are best left to experienced traders.

Hang Seng futures

Futures contracts are agreements to buy or sell the HSI at an agreed price on a set date in the future. Hang Seng futures are a means to predict how you think the index is going to perform over a set time frame, such as the next three or six months.

Most futures contracts involve leverage, so you only put up a small part of the total trade value (the margin) when you buy one. That makes futures more risky, and they require a bit more financial expertise to understand as well.

Some traders use futures as a hedge against the performance of stocks they own. For instance, if you own stocks that are part of the Hang Seng then you might want to short the Hang Seng so that you still make some money if the price falls.

Hang Seng stocks

Another way to invest in the Hang Seng is to buy shares in the individual stocks that the index tracks. It isn’t practical to buy every share in the index, but you can invest directly into a few of the most heavily weighted stocks in the Hang Seng in order to get broad exposure to its performance.

The most heavily weighted stocks in the Hang Seng tend to be the largest companies by market capitalisation. If you invest directly in those largest stocks, you gain exposure to the index without taking on the risk of all the underlying companies.

One reason to do this is that these larger companies with the highest market cap dominate the index anyway, so that it can give you the impression of a diversified portfolio while actually being reliant on the performance of those particular stocks.

For the Hang Seng index, the largest stocks you might choose to invest in are:

Company	Index weight
HSBC Holdings	9.46%
Tencent	8.87%
AIA	8.06%
Alibaba	7.69%
Meituan	5.16%
CCB	4.24%
HKEX	3.10%
China Mobile	2.95%
Ping An	2.76%
JD	2.51%

The flip side of investing directly like this is that you lose the diversification and stability that comes with buying into an entire index. It requires much more hands-on management to do your own stock picking so it’s best suited to more experienced investors.

How much does it cost to invest in the Hang Seng index?

From $0 to $5, depending on how you invest. For each option, you must consider the cost of buying the actual asset, whether that’s an ETF, index fund, CFD, or share, plus the fees associated with it.

Instrument	Trading fee	Expense ratio
Exchange traded funds	$0-$5.99	0-0.2%
Index fund / mutual fund	$0-$5.99	0.1-2%
Individual stocks	$0-$3	None
CFDs	$0	None

*A fee comparison of 3 leading brokers for example purposes

ETFs and CFDs are generally the cheapest option overall, as they have low fees and a low minimum investment. Index funds and mutual funds have low fees but may have a high minimum investment. Buying individual stocks is the most expensive option in absolute terms, because the share price of a single large company is often more than $100.

All options are likely to include a trading fee, which you pay each time you make a transaction. Some trading platforms offer zero-fee trading, with others it may be a few dollars.

Then ETFs and index funds each have their own expense ratio. Expense ratios refer to an annual management fee, charged as a percentage of your total investment. Expense ratios are usually no more than 0.05%, so if you invest $1,000, you would pay $5 per year in management fees.

Should I invest in the Hang Seng index?

Yes, Hang Seng investing is a great choice if you’re looking for a safer investment with more price stability compared to picking individual stocks. It gives you an instantly diverse portfolio with exposure to a broad area of the stock market.

The flip side is that you have less control over which companies you invest in. An index committee decides how the index works, and you can’t pick and choose the underlying companies you like the most. The Hang Seng is better suited to hands-off investors, compared to those who have the skills, experience, and desire to pick their own stocks.

What are the advantages of investing in the Hang Seng index?

An index provides instant stock market diversification, where you spread your risk across a large number of underlying companies, rather than one or two. Here are some more reasons why you might want to invest in the Hang Seng index:

Invest in blue chip stocks based in Hong Kong. Many large financial institutions and technology companies are listed on the Hang Seng Index. The HSI contains about 50 of the best companies on the exchange at any one time. Investing in an HSI ETF gives you the chance to own a piece of all of them, all at once.
You can invest in Chinese companies through the Hang Seng Index. Hong Kong is a special administrative district of China, which means that there are very close economic ties between the two countries. Lots of Chinese companies have dual listings in China and Hong Kong, so you can use the Hang Seng Index to invest in companies that are difficult to access otherwise.
It’s a barometer of performance across Asia. The Hang Seng Index is widely considered a benchmark stock index that shows how well China, and the whole of Asia, is performing. An investment in the HSI can give you clues as to whether to keep your money in Asian stocks or put it into other markets.
It’s cheaper to invest in the Hang Seng Index than to buy stocks in individual companies. You can invest in the Hang Seng index with a small amount of money, often from as little as $10 or $20. That’s a lot less than it costs to invest in the likes of HSBC, Alibaba, or Tencent Holdings. If you don’t have the money to buy those stocks, the Hang Seng Index is a great alternative.
The HSI is easy to invest in. Investing in an index like the Hang Seng is simple, cheap, and quick. You don’t need to decide between different companies or work out how to split your money. You can simply invest in an ETF through your favourite stock broker and be on your way.

What are the disadvantages of investing in the Hang Seng index?

The main risk of investing in the Hang Seng is that all the underlying companies are related in some way, so a broader economic downturn that affected the entire country would likely affect many stocks in the index at the same time. Here are some more risks of Hang Seng investing.

The top weighted stocks have a large impact on the Hang Seng’s performance. The Hang Seng is made up of about 50 stocks, but the stocks are weighted so about 30% of the portfolio is in the top three or four companies. If HSBC, Tencent, or Alibaba go through a tough time, it will drag the entire index performance down with it.
Close links to China can cause uncertainty. While Hong Kong is a separate economic entity to China, the Chinese government can exercise strict control over the country at any time. Similarly, a chunk of the HSI, about 8%, is in ‘red-chip’ stocks, which are companies that the Chinese government itself has a stake in. Its actions can have a large impact on the index’s performance.
Local issues can affect the entire index. As the Hang Seng is made up entirely of companies based in China or Hong Kong, any issue that affects those countries is likely to affect every business in some way.
There are only 50 stocks in the index. While the Hang Seng does provide diversification by letting you invest in a number of stocks, there are a lot fewer companies on the list compared to a big US or European exchange, such as the S&P 500. That removes some of the benefits of diversification, where the more stocks the better in terms of protecting you from one or two failures.

Hang Seng predictions from expert analysts

Insights from stock market analysts can give you an idea of the overall sentiment towards the Hang Seng. It may help you see things from a different perspective, or pick up things you may have missed. Here are some Hang Seng forecasts and insights from leading experts:

In terms of the valuation, as the index is now hovering around the decade-low level, the PE ratio for Hang Seng is quite appealing.
IG.com

The forecast for the beginning of January (2024), 18176. Maximum value, 19964, while minimum, 17352. Averaged index value for month, 18538. The index at the end (of the month), 18658
The Economic Forecast Agency

Invest in the Hang Seng Index

FAQs

Should I invest in the Hang Seng through an index fund or ETF?

How should a beginner invest in the Hang Seng?

Can I invest in the Hang Seng from the UK?

Does the Hang Seng pay dividends?

Which Hang Seng fund is best?

Is there a Vanguard Hang Seng Index ETF?

More indices to invest in

Sources & references

Risk disclaimer

James Knight

Editor of Education

James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the... read more.