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Tuesday, March 02, 2021, 00:12
Hang Seng adopts sweeping changes to HK's stock gauge
By Bloomberg
Tuesday, March 02, 2021, 00:12 By Bloomberg

People walk past an electronic display showing the Hang Seng Index in the Central district of Hong Kong on February 26, 2021. (ISAAC LAWRENCE / AFP)

Hang Seng Indexes Co will boost the members of its Hong Kong Special Administrative Region stock benchmark to 80 and cap the weighting of any one company as it implements the biggest changes to the gauge’s 51-year-old history, in a bid to embrace the new economy.

The wide-ranging overhauls to the Hang Seng Index include increasing the number of constituents from 52 and limit a stock’s weighting to eight percent, the firm said in a statement on Monday. The revamp also shortens the listing history requirement for a company to be included into the gauge. Implementation of the changes will begin as early as its May index review and go through mid-2022.

The wide-ranging overhauls to the Hang Seng Index include increasing the number of constituents from 52 and limit a stock’s weighting to eight percent

The HSI, which in 2020 lagged global peers by the most in decades, has been moving away from being filled with financial and property stocks in recent years at a time when the Chinese mainland’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 to the benchmark.

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

“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 percent in terms of weighting - Tencent, AIA, HSBC - comes to mind with selling pressure expected under the changes.”

ALSO READ: Record mainland inflows push Hang Seng past 30,000 points

The announcement follows a record buying frenzy from mainland traders that 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 mainland megacaps to sell shares. Kuaishou Technology, backed by Tencent, surged 161 percent on its debut last month in the world’s biggest internet initial public offering since Uber Technologies Inc. The HSI revamp will also shorten the listing history requirement to three months for new companies effective May.

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

READ MORE: Hong Kong exchange looks for next act after record year

On Friday, the company said 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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