July 2021

Capturing Many Facets of China’s ‘New Economy’ Sector

With a surge in fundraising activities and increasing contribution to GDP growth, China’s ‘new
economy’ industries are rapidly expanding their economic significance on the economic
landscape. The Hang Seng China New Economy Index (‘HSCNE’) serves to provide
comprehensive exposure to new economy business in China by tracking companies listed in
the US, Hong Kong and mainland China.

The Significance of New Economy in China

Broadly speaking, New Economy refers to the aspects or sectors in the economy where innovation
or new technologies are produced or intensely used. In China, it contains Three New (‘San Xin’)
elements, namely i) New Industry, ii) New Business Form, and iii) New Business Model. In short,
New Industry refers to the new type of economic activities arising from the commercialisation of
newly invented technology; New Business Form refers to the form of economic activities derived
from existing businesses by leveraging innovation and application of technology; and New Business
Model refers to the consolidated and restructured operational model that is unique and competitive
and will create value for users, a model which may involve vertical or horizontal integration with
up/down stream or peers along the value chain. In other words, New Economy not only involves the
Information Technology sector, but also a range of technology-enabled companies in other sectors.
In 2020, China has achieved a real GDP growth of 2.3% YoY, being the only major economy in the
world that having positive growth amid COVID-19. This was likely due to the booming New Economy.
From the perspective of economic value added, the New Economy grew 4.5% YoY, higher than the
nominal GDP growth by 1.4%pt, representing 17.1% of the total GDP in 2020. Exhibit 1 shows the
increasing significance of New Economy, as % of GDP rising from 15.3% in 2016 to 17.1% in 2020.
During the recent years, the companies engaged in China’s New Economy have actively raised funds
across the major markets in the world, including the US, Hong Kong and mainland China. In 2018,
the HKEX introduced new listing chapters to welcome the wave of New Economy IPOs and also the
homecoming of US-listed Chinese technology firms. Exhibit 2 shows that in 2020, the New Economy
fundraising in Hong Kong grew 67% YoY, representing 64% of total IPO funds raised in Hong Kong.
Given the increasing economic significance and the high growth of China’s New Economy segment,
the Hang Seng China New Economy Index can serve to capture the opportunities arising from across
the US, Hong Kong and mainland China stock markets, for global investors who would like to have
a comprehensive exposure in China New Economy.
Exhibit 1: China New Economy Value Added and as % of GDP

Remarks: New Economy refers to the China’s ‘San Xin’ Economy Value Added
Source: National Bureau of Statistics
Data as of 6 July 2021
1
Exhibit 2: New Economy IPO Funds Raised in Hong Kong

Remarks: HKEX’s New Economy consists of industries including biotech, healthcare technology, internet & direct marketing
retail, internet software & services, IT services, software, technology hardware, storage & peripherals
Source: Hong Kong Exchanges and Clearing (HKEX)
Data as of 9 July 2021

HSCNE – A Cross-market Index to Track New Economy Companies

The objective of HSCNE is to reflect the performance of Chinese companies that are listed in Hong
Kong, mainland China and the US and that are classified under the industries which are perceived
as New Economy. It is freefloat-adjusted market capitalisation weighted, with 10% weighting cap on
individual companies to avoid over-concentration. This cross-market index is calculated and
disseminated once on each trading day at about 9:30am HKT, in RMB currency. The index was
launched on 3 September 2018, with a fixed number of constituents at 100.
Exhibit 3 shows that the HSCNE currently consists of 101 companies (with 111 tickers) from eight
industries, namely the Information Technology (48% weights, 31 companies), Consumer
Discretionary (20% weights, 26 companies), Industrials (14% weights, 16 companies), Healthcare
(12% weights, 15 companies), Telecom (3% weights, 4 companies), Financials (2% weights, 2
companies), Utilities (2% weights, 6 companies) and Consumer Staples (0.1% weight, 1 company).
Exhibit 3 shows the weights of different industries and three stock markets under the HSCNE. Exhibit
4 shows top ten constituents account for a total weighting of 44% in the HSCNE.
For the index universe, the HSCNE is a cross-market index and selects constituents from the
universes including: i) H-share, Red-chip and P-chip constituents in the HSCI that eligible for
Southbound Stock Connect trading, ii) A-shares eligible for Northbound trading, iii) US-listed China
companies incorporated and headquartered in mainland China. For turnover requirement in the past
6 months, the threshold requires ADT not less than HKD20 million (for HK-listed shares), RMB20
millions (for A-shares) and USD3 million (for US-listed shares).
Exhibit 3: The HSCNE Weightings by Industry and Listing Markets

Source: Hang Seng Indexes Company

Data as of 9 July 2021
2
Exhibit 4: Top 10 Constituents of the HSCNE
Top10 Ticker Name HSICS Industry HSICS Sector Weightings
1 BABA.US ALIBABA Information Technology Software & Services 9.9%
2 700.HK TENCENT Information Technology Software & Services 9.1%
3 3690.HK MEITUAN-W Information Technology Software & Services 5.7%
4 300750.SZ CATL Industrials Industrial Engineering 4.1%
5 PDD.US PINDUODUO Information Technology Software & Services 2.9%
6 JD.US JINGDONG Information Technology Software & Services 2.9%
7 601012.SS LONGI Industrials Industrial Engineering 2.7%
8 NIO.US NIO Consumer Discretionary Automobiles 2.5%
9 1810.HK XIAOMI-W Information Technology IT Hardware 2.4%
10 333.SZ MIDEA GROUP Consumer Discretionary Household Goods & Electronics 2.2%
44.4%
Source: Hang Seng Indexes Company
Data as of 9 July 2021

For the sector requirement, eligible stocks should be classified in one of the sub-sectors shown in
Exhibit 5. In particular, for Consumer Staples, Consumer Discretionary, or Financials, given those
companies which have major business operations by using internet platform can also be eligible.

Exhibit 5: Sector Requirement for the HSCNE

Industry Sector Sub-sectors
10 Industrials 1010 Industrial Engineering 101020 Industrial Components & Equipment
101025 Electronic Components
101030 Environment Engineering
101050 New Energy Materials
101060 Aerospave & Defense
23 Consumer Discretionary 2310 Automobiles 231010 Automobiles
231020 Auto Parts
2320 Household Goods & Electronics 232010 Home Appliances
232020 Consumer Electronics
2340 Travel & Leisure 234050 Travel & Tourism
2350 Media & Entertainment 235010 Advertising & Marketing
235020 Broadcasting
235030 Movies & Entertainment
235040 Publishing
2360 Support Services 236010 Education
2370 Specialty Retail 237010 Automotive Retailers
237020 Apparel Retailers
237030 Home Improvement Retailers
237040 Diversified Retailers
237050 Other Retailers
28 Healthcare 2810 Pharmaceuticals & Biotech 281010 Pharmaceuticals
281020 Biotechnology
2820 Healthcare Equipment & Services 282010 Medical Devices
282020 Medical & Aesthetic Services
35 Telecom 3500 Telecommunications 350010 Satellite & Wireless Communication
350020 Telecommunication Services
40 Utilities 4000 Utilities 400010 Electricity
400030 Water
400040 Alternative/ Renewable Energy
70 Information Technology 7010 IT Hardware 701010 Telecommunication Equipment
701020 Computers & Peripherals
7020 Software & Services 702010 System Applications & IT Consulting
702020 E-Commerce & Internet Services
702030 Software
7030 Semiconductors 703010 Semiconductors
Industry (with special criteria) Special Criteria for Eligibility
23 Consumer Discretionary
Retail companies that perform major business operations by using internet platform
25 Consumer Staples
50 Financials Financial companies that perform major business operations by using internet platform
Source: Hang Seng Indexes Company
Data as of 9 July 2021

3
Outperformance of the HSCNE by 6.4%pt vs broad market HSC500

By analysing the backtesting data from 1 January 2015 to 9 July 2021, it is observed that the HSCNE
has generated a return of 131% or an annualised return of 14.1%, indicating it is outperforming the
benchmark market (represented by the HSC500’s annualised return of 7.6%) by 6.4%pt on
annualised basis. Though the HSCNE’s annualised volatility of 19.5% was higher than the HSC500’s
18.4%, the HSCNE’s risk-adjusted return (annualised return/annualised volatility) of 0.72x
outperformed HSC500’s 0.41x.

During the market crash in the early 2020, the HSCNE’s performance plunged 19% (from 5,120 on
20 February 2020 to 4,153 on 23 March 2020), slightly larger than the decline of 17% by the
benchmark market (represented by the HSC500) in the same period, but the subsequent rebound of
the HSCNE’s 62% (as of 9 July 2021) was substantially stronger than the HSC500’s 43%.

Exhibit 6: The HSCNE Outperformance vs the HSCI and the HSC500 (rebased)

Source: Hang Seng Indexes Company

Data as of 9 July 2021

4
Disclaimer

The information contained herein is for reference only. Hang Seng Indexes Company Limited (“Hang
Seng Indexes”) ensures the accuracy and reliability of the information contained herein to the best of
its endeavours. However, Hang Seng Indexes makes no warranty or representation as to the
accuracy, completeness or reliability of any of the information contained herein and accepts no
liability (whether in tort or contract or otherwise) whatsoever to any person for any damage or loss of
any nature arising from or as a result of reliance on any of the contents of this document, or any
errors or omissions in its contents and such contents may change from time to time without notice.

The information contained herein does not constitute any express or implied advice or
recommendation by Hang Seng Indexes for any investments. Investment involves risks. Prospective
investors should seek independent investment advice to ensure that any of their decisions is made
with regard to their own investment objectives, financial circumstances and other particular needs.
Prospective investors should also note that value of securities and investments can go down as well
as up and past performance is not necessarily indicative of future performance.

© Hang Seng Indexes Company Limited 2021. All rights reserved.