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Before investing, understand the main indexes and sectors of Hong Kong stocks.

Warren Buffett never recommends any stocks or other types of investments. Some even say he covers his mouth with a towel when he sleeps. Because he thinks about stocks all day, he worries about talking in his sleep at night and letting those around him hear it.

However, he vigorously recommends index funds in various occasions. Before understanding index funds, let's first understand the three major indexes in Hong Kong and their corresponding sector classifications.

Three major indexes in the Hong Kong stock market.

1. Hang Seng Index

Hang Seng IndexOne of Hong Kong's earliest stock market indexes. Since its launch on November 24, 1969, it has been widely used as an important indicator reflecting the performance of the Hong Kong stock market. In order to further reflect the price trends of securities in various categories, the Hang Seng Index introduced sector indexes in 1985, and classified all constituent stocks into four sector indexes: financials, utilities, properties, and industrials.

2. Hang Seng China Enterprises Index

国企指数，又称H股指数，全称是恒生中国企业指数，也是由香港恒生指数服务有限公司编制和发布的。该指数以所有在联交所上市的中国H股公司股票为成份股计算得出加权平均股价指数。设立恒生中国企业指数的目的，是要为投资者提供一个反映在香港上市的中国H股企业的股价表现的指标。该指数的计算公式与恒生指数相同。国企指数于1994年8月8日首次公布，以上市H股公司数目达到10家的日期，即1994年7月8日为基数日，当日收市指数定为1000点。指数追溯计算至1993年7月15日，亦即首家中国企业在联交所上市的日期。

3.红筹股指数

红筹股指数，指香港恒生指数服务有限公司编制和发布的恒生红筹股指数。该指数于1997年6月16日正式推出，样本股包括32只符合其选取条件的红筹股，而非所有红筹股。指数以1993年1月4日为基日，基日指数定为1000点。

此外，香港上市公司来源于全球26个不同的国家和地区，其中不乏全球知名的优秀企业。港股涵盖11大行业、30大业务类别和86种业务子类别，其中既包含金融、地产、建筑等传统行业，也包括资讯科技和医疗等新兴行业。港股多样化的公司类型和全面的行业配置，可以为不同风格和类型的投资者提供选择。

按照2013年9月生效的恒生行业分类系统，11大行业分别是能源业、原材料业、工业、消费品制造业、消费者服务业、电讯业、公用事业、金融业、地产建筑业、资讯科技业和综合企业。

港股分为主板和创业板两个交易平台，主板居于主导地位。

Hong Kong stock market global sectors

The Hang Seng Industry Classification System is a comprehensive industry classification system developed in response to the situation of the Hong Kong stock market. With an increasing number of companies from different industries listing in Hong Kong, making the market more diverse, this system provides a detailed way of industry classification to reflect the performance of stocks in different industries. The Hang Seng Industry Classification System, consisting of 12 industries, 31 business categories, and 94 business subcategories, not only caters to the uniqueness of the Hong Kong stock market, but can also be compared with international industry classification systems to align with major industry classification systems worldwide.

In addition, in terms of the classification of industry sectors in the market, they are generally divided into the following sectors:

Hong Kong based companies

1. Utilities Industry

Utilities sector refers to public utility sectors closely related to people's daily lives, such as electricity, gas, energy, railroads, etc. These enterprises, regardless of economic ups and downs, require usage, maintain long-term cooperation with the government, have relatively stable stock price fluctuations, high entry barriers, less competitive peers, and attract funds for long-term holdings with stable dividends. Some utilities businesses focus on the Hong Kong market, while others invest mainly in global utility services, such as Power Assets (00006), where only 16% of profits come from Hong Kong, with the majority of income from the UK, Australia, and China.

Examples of utilities industry:

Electrical utilities stocks: CLP (0002), HK Electric (2638)

Energy stocks: China Yangtze Power Co., Ltd. (1038), Power Assets Holdings Limited (0006)

Local retail stocks

Hong Kong retail stocks include cosmetics, watches, jewelry stores, department stores, clothing retail industry, closely related to enterprise cost control, exchange rates, and tourism atmosphere. The biggest cost pressure for Hong Kong retail stocks comes from store rents and labor costs, having self-owned properties will be more advantageous. Exchange rates will affect the consumption intentions of visiting tourists to Hong Kong, the recent trend of the Renminbi is the biggest factor affecting retail stocks. Once the Renminbi exchange rate against the Hong Kong dollar rises, mainland tourists' consumption in Hong Kong will increase, otherwise it will decrease. Taking the second half of 2019 as an example, the unstable situation in Hong Kong affected the consumption intentions of mainland customers, and the stock prices of various local retail stocks were greatly impacted.

Examples of retail stocks:

Cosmetic stocks: Sa Sa International Holdings Limited (0178)

Jewelry stocks: Chow Tai Fook Jewellery Group Limited (1929)

Department store stocks: Lane Crawford Joyce Group (1212)

Local financial stocks

Local financial stocks include local banks and securities firms, with diversified business operations in local bank stocks. For example, HSBC prides itself on its diversified business, while Hang Seng focuses mainly on its Hong Kong operations. Bank stocks are mainly affected by interest rates, benefiting from improvements in net interest margins during rate hike cycles. The revenue of brokerage stocks mainly comes from commissions earned from buying and selling for clients and interest earned from new stock placements. If the stock market is booming and trading volumes increase, brokerage stocks can also benefit.

Examples of financial stocks:

Bank stocks: HSBC (0005), Hang Seng Bank (0011), Standard Chartered Bank (2888)

Brokerage stocks: Bright Smart Securities (1428), Kam Fung Securities (1031)

4. Real Estate Stocks

In recent years, Hong Kong property prices have been continuously rising, benefiting local real estate stocks involved in property development. Real estate stocks provide stable dividends and are a sector favored by many conservative investors. Investors should pay attention to the land reserves and financial ratios of real estate stocks to determine which ones are more competitive. However, real estate stocks face rising borrowing costs during traditional rate hike cycles, so investors should watch for future interest rate developments before deciding whether to enter the market.

Examples of real estate stocks:

Henderson Land Development (0012), SHK Properties (0016), CK Asset (1113)

CSI China Mainland Economic Stocks

1. Network Technology Stocks

Domestic network technology stocks play a very important role in the Hong Kong stock sector. As Tencent (0700) has already accounted for one-tenth of the constituent stocks in the Hang Seng Index, the rise and fall of Tencent greatly influences the trend of the Hang Seng Index. In addition, with the arrival of domestic network technology giants such as Meituan, JD.com, Netease, and Alibaba, their share of the trading volume in the Hong Kong stock market will become increasingly larger. Furthermore, in the future, in the domestic market of 1.3 billion people, the businesses of network technology stocks, such as electronic payments, communication software, mobile games, are closely related to daily life. For example, Tencent's WeChat, which includes communication, payment, social platform, e-commerce, and investment functions, has seen its stock price continuously rising in recent years. Other software, hardware, and mobile game developers also have impressive business revenues.

Examples of Network Technology Stocks:

Tencent (0700), Kingsoft (03888), Lenovo (0992)

2. China Mainland Banking

China Mainland banking refers to mainland banks listed on the Hong Kong Stock Exchange. The industry is mainly divided into large banks with networks nationwide (Bank of China, China Construction Bank, Industrial and Commercial Bank, and Agricultural Bank) and small to medium-sized banks that focus on specific regions. China Mainland banking is mainly influenced by factors such as non-performing loans and monetary policies. For instance, if the People's Bank of China decides to reduce the mainland's reserve requirement ratio, it will help increase the liquidity of China Mainland banking funds.

Examples of China Mainland Banking:

The four major banks: Bank of China (3988), China Construction Bank Corporation (0939), Industrial and Commercial Bank of China (1398), Agricultural Bank of China (1288)

Regional banks: Bank of Gansu (2139), Bank of Chongqing (1963)

3. CSI China Mainland Consumer Index

Mainland retail stocks are closely related to the Chinese economy. If the stock market and property market in the mainland rise, it brings wealth income to citizens, and consumption capacity and sentiment will rise. Conversely, they will decrease. Mainland retail stocks are mainly divided into food production stocks, autos stocks, sporting goods stocks, and department store stocks. If you want to analyze the mainland retail market trends, pay attention to the monthly release of China National Bureau of Statistics' total retail sales of consumer goods. If you want to focus on individual industries in the retail sector, you need to closely follow the domestic economic trends.

Examples of mainland retail stocks:

Food production stocks: Tingyi (0322), Want Want China (0151)

Autos stocks: Guangzhou Automobile Group (2238), Great Wall Motor (02333)

Sporting goods stocks: Anta Sports (2020), 361 Degrees (1361)

Link to the 'Introductory Course on Hong Kong Stock Investment': https://www.futuniuniu.com/course/1245

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