Hang Seng launches HSCEI Volatility Index

Dec 4th, 2018 | By | Category: Alternatives / Multi-Asset

Hang Seng Indexes has launched the HSCEI Volatility Index which reflects the expected volatility over the next 30 days of the Hang Seng China Enterprises Index (HSCEI).

Hong Kong China ETFs

The Hang Seng China Enterprises Index formed of 50 large-cap Chinese equities listed in Hong Kong.

The HSCEI is formed of 50 equity securities and offers broad exposure to large-cap Chinese companies listed on the Hong Kong stock exchange.

The constituent securities are split between 40 H-shares and a total of 10 Red-chips and P-chips. These share classes differ with respect to where a company is incorporated.

H-shares are shares in companies incorporated in mainland China, while Red-chip and P-chip companies are domiciled outside of mainland China. P-chip companies are incorporated specifically in the Cayman Islands, Bermuda and the British Virgin Islands, and are private sector businesses operating in mainland China.

Constituents are weighted by free float market capitalization with a cap of 10% per issuer.

The HSCEI Volatility Index is calculated using a spectrum of prices of the two nearest-term expiration months of HSCEI options currently trading on the derivatives market at Hong Kong Exchanges and Clearing.

When the index is at higher levels, this generally implies that the market is expecting relatively larger changes in the HSCEI over the next 30 days, indicating that investor sentiment is uncertain.

Lower index values in contrast imply that the market expects little change in the HSCEI over the next 30 days, reflecting an overall view among investors that the market will be relatively stable in the short term.

Daniel Wong, Director and Head of Research and Analytics at Hang Seng Indexes, said, commented, “The [HSCEI Volatility Index] is designed to reflect investor sentiment towards the overall performance of mainland China enterprises listed in Hong Kong. As the HSCEI Volatility Index and the HSCEI will generally move in opposite directions, the HSCEI Volatility Index can be used to develop investment products to manage volatility exposure for investors. These investment products could hedge against investments that use the HSCEI as a benchmark.”

The launch of the new index follows the successful introduction of the HSI Volatility Index in 2011. This index tracks the 30-day expected volatility of the Hang Seng Index, which is a barometer of the overall sentiment of the Hong Kong stock market.

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