Overview of the listed market

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Which indices are generally used to track the performance of the Hong Kong stock market?

Hong Kong stock market performance is gauged by various indices, including the Hang Seng Index, the S&P/HKEX LargeCap Index, the S&P/HKEX GEM Index, the FTSE/Xinhua indexes and the MSCI indexes.

The Hang Seng Index, complied by Hang Seng Indexes Company Limited, is most widely used in Hong Kong to reflect the performance of the stock market. The index is reviewed by the company on a regular basis and is currently composed of about 50 stocks representing approximately 50 per cent of the market capitalisation of the Main Board. As the Hong Kong market developed, a series of indices based on issuers’ regions and industries and the liquidity of their shares emerged to reflect the performance of various types of stocks listed in Hong Kong. These indices such as the Hang Seng China Enterprises Index, the Hang Seng China H-Financials Index and the Hang Seng China-Affiliated Corporations Index. For information about the Hang Seng Index series, please visit the Hang Seng Indexes website at www.hsi.com.hk.

The S&P/HKEX LargeCap Index is composed of 25 stocks representing about 75 per cent of the total market capitalisation of the Main Board. Designed to track the performance of shares listed on GEM, the S&P/HKEX GEM Index has no fixed number of constituents but each of its constituents is subject to strict liquidity requirements. For information about the S&P/HKEX index series, please visit the Standard & Poor’s website at www.standardandpoors.com.

What are the notable differences between the Hong Kong and Mainland securities markets?

The two markets differ in many aspects, including:

1.	The Hong Kong market is more international and has more institutional investors. Institutional investors from Hong Kong and overseas account for about 65 per cent of total turnover. As investors in different markets differ in their judgments about securities valuation and market prospects, investors should exercise prudence when participating in the Hong Kong securities market.
2.	The Hong Kong market offers greater product choices to cater for investors with different risk preferences. The products include equity securities, equity warrants, derivative warrants, Callable Bull/Bear Contracts, or CBBCs, Exchange Traded Funds, or ETFs, Real Estate Investment Trusts, or REITs, and debt securities.

The two markets also differ in trading arrangements, for example:

1.	The Mainland’s circuit breakers trigger the suspension of trading in shares of companies when their prices move beyond a certain limit. In the case of Hong Kong’s Volatility Control Mechanism (VCM), a five minute cooling-off period is triggered if the price of an applicable security deviates more than ±10% away from the last traded price five minutes ago. During the cooling-off period, trading is allowed within a pre-defined price band. Normal trading without restriction will resume after cooling-off period. VCM in the securities market is only applied on all Hang Seng Index and Hang Seng China Enterprise Index constituent stocks as well as only applicable to board lot order input during certain periods of the Continuous Trading Session. Hong Kong law forbids trading suspensions by Hong Kong’s stock exchange in the absence of orders given by the Securities and Futures Commission in consultation with Hong Kong's Financial Secretary.
2.	In Hong Kong, screens displaying quotations for stocks whose prices are rising are in green while those for stocks with falling prices are in red. The reverse applies on the Mainland, rising prices are shown in red and falling prices in green.
3.	Transactions in the Hong Kong market are usually denominated in Hong Kong dollars, while those in the Mainland are usually in renminbi.
4.	In Hong Kong, dealers may engage in day trades for clients, meaning securities may be sold on the same day they are purchased. On the Mainland, with a few exceptions like ETFs and warrants, securities must be credited into an account before they can be sold.
5.	In Hong Kong, the settlement cycle for securities settlement between the clearing house and brokers is T+2. However, all settlement arrangements between brokers and clients are commercial agreements between the two parties. Investors should check the arrangements with their brokers before entering into a transaction. For example, they should enquire if purchases require immediate payment and when proceeds from a share sale can be received. On Mainland, the settlement cycle for securities settlement is usually T+1. Moreover, investors are required to pay in full in advance for buy orders and to have sufficient securities in the custody of their brokers for sell orders.
6.	The Hong Kong securities market allows investors to hold physical certificates after purchases. Such practice is not allowed in the Mainland securities market.

In what ways are H-share companies different from red chips? How can investors obtain the lists of the companies?

H-share companies are companies incorporated in Mainland China and whose listings in Hong Kong are approved by the China Securities Regulatory Commission (CSRC). Shares in these companies are listed in Hong Kong, subscribed for and traded in Hong Kong dollars or other currencies, and referred to as H shares. After finding its way into the Listing Rules, the term H share has been accepted and is widely used in the market. The letter H stands for Hong Kong.

Red chip companies are enterprises that are incorporated outside of the Mainland and are controlled by Mainland Government entities.

The most important difference between a red chip company and an H-share company is that a red chip company is not Mainland-incorporated.