Hong Kong's Hang Seng Index set for biggest overhaul in 51 years

Hang Seng Indexes will boost the members of its Hong Kong stock benchmark to 80 and cap the weighting of any one company as it implements the biggest changes to the gauge’s 51-year 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 8 per cent, 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 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 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 to the benchmark.
 
The new weighting limit of 8 per cent, down from a maximum of 10 per cent, 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 per cent.
 
“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 per cent in terms of weighting — Tencent, AIA, HSBC - comes to mind with selling pressure expected under the changes.”

 
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 and Hong Kong Exchanges & Clearing.
 
The Asian financial hub has become a preferred venue the past several years for a wave of Chinese megacaps to sell shares. Kuaishou Technology, backed by Tencent, surged 161 per cent on its debut last month in the world’s biggest internet initial public offering since Uber Technologies.
 
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 per cent in 2020, it said in December’s paper.
 
On Friday, the company said it would add Alibaba Health Information Technology, Haidilao International Holding and Longfor Group Holdings, expanding the benchmark to 55 members from 52 effective March 15.