Mar 02, 2021 07:16 AM

Hang Seng Index to Expand Members to 80 in Biggest Makeover

Pedestrians wearing protective masks walk past an electronic screen displaying the opening figure of the Hang Seng Index in Hong Kong
Pedestrians wearing protective masks walk past an electronic screen displaying the opening figure of the Hang Seng Index in Hong Kong

(Bloomberg) — Hang Seng Indexes Co. will increase the number of stocks in its Hong Kong benchmark to 80 and cap the weighting of any one company as it embraces the new economy by implementing the biggest changes in the gauge’s 51-year-old history.

The sweeping overhaul to the Hang Seng Index includes increasing the number of constituents from 52 and limiting a stock’s weighting to 8%, the company said Monday in a statement. The revamp also shortens the listing history requirement to three months for a company to be included in the gauge. Implementation of the changes will begin as early as May and go through mid-2022.

The HSI, which in 2020 lagged behind global peers by the most in decades, has been moving away from being filled with financial and property stocks as China’s tech giants hold growing sway. In 2019, the information technology sector overtook financials as the index’s largest industry by market value, according to a December consultation paper detailing proposed changes.

The new weighting limit for all members of 8%, down from a maximum of 10%, will also be applied to the Hang Seng China Enterprises Index, effective with the index rebalancing in June. The benchmark currently caps secondary listings or shares with unequal voting rights at 5%.

“This is expected to help reduce the volatility of the HSI,” said Jingyi Pan, a market strategist at IG Asia in Singapore. “Immediately, those above 8% in terms of weighting — Tencent, AIA, HSBC — come to mind with selling pressure expected under the changes.”

A record buying frenzy from mainland traders sent the stock gauge 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.

The Asian financial hub has become a preferred venue the past several years for a wave of Chinese mega issues selling shares. Kuaishou Technology, backed by Tencent, surged 161% on its debut last month in the world’s biggest internet initial public offering since Uber Technologies Inc.

In addition, Hang Seng Indexes will ensure that 20 to 25 of constituents in the benchmark are classified as Hong Kong companies, a number that will be evaluated every two years. The proportion of mainland companies in the index by market value was 79% in 2020, it said in the December paper.

The company said Friday it would add Alibaba Health Information Technology Ltd., Haidilao International Holding Ltd. and Longfor Group Holdings Ltd., expanding the benchmark to 55 members from 52 effective March 15.

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