These Are the Winners and Losers of the Hang Seng Index Revamp

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Mar 02 2021, 7:04 AMMar 02 2021, 8:07 AMMarch 02 2021, 7:04 AMMarch 02 2021, 8:07 AM

(Bloomberg) -- 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, say 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 on Monday. 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.

Hang Seng to Boost Index Members to 80 in Biggest Makeover (2)

Consultation results	Existing conditions
Target to reach 80 constituents by mid-2022, aim to ultimately fix at 100 constituents	52 members, expanded to 55 by March 15
Shorten the listing history requirement to three months, effective from the May 2021 index review	Minimum of three-month listing based on market value rank
Apply 8% weighting cap on all constituents, effective from June 2021	10% for single stock; 5% for secondary-listed constituents
Expand sector representation with constituents selection by seven industry groups, effective from the May 2021 index review	Among 12 industries, telecoms, financials and IT covered 80% in terms of market capitalization as of Dec. 2020
Maintain 20 to 25 constituents that are classified as Hong Kong firms, number to be evaluated every two years	Weighting of Hong Kong firms in HSI fell to 42.2% in Dec. 2020 from 45.3% end 2016

Winners

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 4 percentage points and 3 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 $25 billion from the current $20 billion, “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.