Hong Kong plans to double the number of stocks in its benchmark, in a reshuffle that will better reflect the growing dominance of Chinese quotes in the city’s market.
The Hang Seng Indices will increase the number of stocks in its eponymous benchmark, followed by around $ 28 billion in exchange-traded and local pension funds, from 52 to 80 by mid-2022. That will eventually bring the total to 100, the company said after markets in Hong Kong closed on Monday.
Analysts believe the move will help the Hang Seng better reflect mainland Chinese companies, especially popular tech groups that have flocked to raise funds in the Asian financial hub in recent years.
“This is the biggest reform of the Hang Seng Index ever,” said Dickie Wong, research manager at Hong Kong-based Kingston Securities. “Expect more and more Chinese companies to be included and more and more Hong Kong companies to be excluded,” he added.
The 50-year-old index provider also said on Monday it would cap individual stock weights at 8%, down from 10% currently, with the same limit applied to all members – including New York-listed Alibaba and JD. . .com, whose weightings are currently capped at 5 percent due to the sale of shares in Hong Kong only as a secondary location.
He had already announced three new members from mainland China on Friday, including Alibaba Health Information Technology, a spin-off of the Chinese e-commerce group in the health sector.
More than 80% of respondents polled in a consultation had supported the expansion of the gauge, Hang Seng Indexes said. He also got support to cap maximum weightings at 8 percent and keep at least some Hong Kong companies in the gauge.
Analysts said the biggest losers from the reshuffle would be Hong Kong-focused financial groups and local property developers run by the city’s tycoons, whose long-standing influence on the benchmark has persisted despite the downturn. their share of the overall market capitalization.
Last year, the Hang Seng Indices decided to modify the index by allowing companies such as Alibaba, whose main trading platform is New York, to be included, but with weights lower than those. others, including Tencent, whose main listing in Hong Kong allows it to benefit from a weighting of up to 10 percent.
The heavier gauge weighting of old economy stocks held the Hang Seng down relative to its peers in other financial centers, particularly New York City, where tech stocks dominate the S&P 500 benchmark.
While the new regime will keep a minimum of 20 Hong Kong companies in the Hang Seng, that leaves plenty of room for the expansion of higher-value Chinese stocks, with the total gradually increasing to 100.
“The Hang Seng has underperformed other major markets that have more components with higher valuations,” said Bruce Pang, head of research at China Renaissance, an investment bank.
“Expect [revised] Hang on Seng to be more representative of the market and gain more favor with investors, ”he added.