Pedestrians pass by a display showing the Hang Seng Index level in Hong Kong on Sept 15, 2020. (PHOTO / AP)
Investors will soon discover if the Hong Kong Special Administrrative Region’s Hang Seng Index will undertake one of the biggest overhauls in its 51-year history, a move that would impact tens of billions of dollars in funds tracking the stock benchmark.
On Monday, Hang Seng Indexes Co will offer its conclusion after an industry consultation over proposed measures to the city’s stock benchmark, which if approved would increase the number of member constituents, cap weightings of individual companies and fast-track new listings.
On Monday, Hang Seng Indexes Co will offer its conclusion after an industry consultation over proposed measures to the city’s stock benchmark, which if approved would increase the number of member constituents, cap weightings of individual companies and fast-track new listings
The HKSAR has become the preferred venue for a wave of Chinese mainland megacaps to sell shares, including standouts like Kuaishou Technology, which surged 161 percent at its debut in early February after holding the world’s largest internet initial public offering since Uber Technologies Inc.
The announcement will also come on the heels of a record buying frenzy from mainland traders that propelled the HSI past the 30,000 point level in January for the first time since May 2019, led by heavyweights like Tencent Holdings Ltd and Hong Kong Exchanges & Clearing Ltd. If the wide-ranging changes are approved, analysts say that the HSI, which in 2020 lagged global peers by the most in decades, could have more room to run.
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“The valuation of the index will be pushed higher as more new economy stocks are expected to join under the changes,” said Dickie Wong, executive director of research at Kingston Securities Ltd. “This could also make the index more volatile.”
Key changes under consideration include increasing the number of constituents to between 65 and 80 from the current 52 members, removing minimum listing history requirement for inclusion into index, lowering weighting cap of individual constituents and align weighting cap of secondary-listed members to 8 percent, selecting constituents by industry group to balance representation, and maintaining a certain number of constituents classified as HKSAR companies.
On Friday, Hang Seng Indexes added three companies to its index following its quarterly review, expanding the constituent count to 55 members from 52. The changes are effective March 15.
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Launched in 1969, the Hang Seng Index started out with 33 constituents, rising to 38 in 2007 when it began to include H-share firms. Last year, Hang Seng Indexes added dual class shares and secondary listings to its index in a major revamp, allowing mainland giants like Alibaba Group Holding Ltd into the city’s benchmark.