Hang Seng Index looks to Double Stocks in Benchmark
Hang Seng Index has reportedly decided to almost double the number of stocks in its benchmark.
The number of stocks comprising the Hang Seng Index will increase from the current 55 companies to 80 by mid-2022 and then later to 100, according to an article by Citywire Asia, written by Peter Guy.
The manager of the index, Hang Seng Indexes announced the change, which represents its most significant re-indexing in its 52-year history, says Citywire Asia.
Enthusiastic support was received by the Hong Kong stock exchange after its consultation in January for a broadening and increase in the number of constituent stocks.
It would reflect Hong Kong’s changing economic role as a financial centre for China. Widening the Hang Seng Index’s industrial and sectoral coverage allows investors to achieve a better representative gauge of the market.
The local bourse has undergone major regulatory challenges and made changes in the type of companies it allows to list.
Listing standards have been modified since 2018 when Hong Kong Exchanges and Clearing allowed pre-revenue and unprofitable technology and biotechnology companies to list. This follows an earlier controversy over multiple class shares, which resulted in Alibaba deciding to list in NYSE.
By May 2020, the Hang Seng Index included companies featuring multiple voting rights. Alibaba Group Holdings, Xiaomi and Meituan were the first three companies to be listed under the new rule.
Historically, the Hang Seng Index was dominated by local, family owned property companies, colonial conglomerates and financial companies.
A fund manager said: ‘Hong Kong and the Hang Seng Index finally recognised the profound economic changes. China’s influence on Hong Kong’s investment role forced it to look beyond its former role as a strictly city bourse for local property tycoons. ‘Mainlandisation’ of its makeup is a positive development for everyone.’
More to come
Additional listings in the future could include more health care companies and secondary listings by large cap, Chinese technology companies who are migrating from their primary listings in the US markets.
Increasing the constituent stocks to 80 allows the Hang Seng Index to cover 71% of the total market capitalisation of Hong Kong, up from 56.6% as of the end of January. It will also cover 66% of market turnover, up from 50% today according to a statement by Hang Seng Indexes on Monday.
‘The new enhancements to the HSI will further increase its representation and make the index more balanced and diversified,’ said Anita Mo, the chief executive of Hang Seng Indexes.
Other key amendments to the composition of index seek to achieve a balanced representation of Hong Kong businesses and mainland enterprises.
The market capitalisation weighting of individual stocks are to be limited to 8%, which is smaller than the current 10 per cent. The new rules also permit companies to join the index following three months of being listed versus the present requirement of having to wait two years. The index will be more efficient in reflecting current market and sectoral developments.
Hang Seng Indexes also maintains that between 20 and 25 Hong Kong companies will make up the group constituent stocks. This ensures a balance among Hong Kong and Chinese companies that move in and out of the benchmark. The index currently features 24 Hong Kong firms and 31 Chinese companies.
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