HONG KONG: One of the biggest-ever revamps for Hong Kong’s benchmark Hang Seng Index will benefit the likes of Alibaba Group Holding Ltd and Xiaomi Corp while some current heavyweights could face selling pressure, according to analysts and fund managers.
The wide-ranging overhauls to the gauge include increasing the number of constituents to 80 and limiting a stock’s weighting to 8%, Hang Seng Indexes Co said in a statement.
The revamp also shortens the listing history requirement for a company to be included.
Implementation of the changes will begin as early as the May index review and go through mid-2022.
Firms that are secondary-listed or carry unequal voting rights, including Alibaba Group Holding Ltd, Xiaomi Corp and Meituan, will no longer be limited to 5% weightings on the index.
Consumer and health-care related stocks would see their sector weightings increase by four percentage points and three percentage points respectively at the expense of the financial sector, according to a research note by Goldman Sachs strategists including Si Fu.
The revamp is seen as good news for ETF providers, as more funds are expected to be lured to track the index.
Goldman expects passive funds tracking the gauge to grow to US$25bil from the current US$20bil, “providing scope to bring additional inflows to all the index constituents.”
A more diversified membership and a higher weight of new-economy stocks will help the index performance as a whole, according to fund managers.
“As more new-economy firms join, the index is likely to test the level of 40,000 in the future, ” said Paul Pong, managing director at Pegasus Fund Managers Ltd.
Under the new weighting cap, stocks that currently have a larger presence on the index could face redemptions by the passive funds, which could affect Tencent Holdings Ltd, AIA Group Ltd and HSBC Holdings Plc, according to CGS-CIMB Securities International Pte and Everbright Sun Hung Kai Co.
Tencent could also potentially be pressured as the index opens up to more Chinese technology firms, according to Pegasus Fund Managers’ Paul Pong, given that newly listed companies such as Kuaishou Technology and JD Health International Inc could win inclusion at a faster pace than before under the new requirement of three months of listing history.Hong Kong’s local firms face a battle to preserve their weight in the index, with their number to be evaluated at least every two years.
Goldman Sachs pointed out that the aggregate weighting of local firms could fall from 40% to 32%, as mainland firms’ weighting increases.
Potential deletions include Bank Of Communications Co, China Life Insurance Co, WH Group and Hengan International Group, according to Smartkarma.
“The biggest losers probably would be in finance or banking sectors, as they are the heaviest constituent stocks in Hang Seng index now, ” said Edison Pun, senior market analyst at Saxo Markets Hong Kong.
“With the adjustment, their importance would be greatly reduced, ” he said. — Bloomberg