Hang Seng Index

Li against allowing H shares in HSI

PUBLISHED : Thursday, 13 April, 2006, 12:00am
UPDATED : Thursday, 13 April, 2006, 12:00am

BEA chairman says the blue-chip index may be dominated by mainland firms

David Li Kwok-po, the chairman and chief executive of Bank of East Asia, has questioned the decision to allow H shares to become members of the Hang Seng Index.

He believes the blue-chip index should 'truly reflect the performance of Hong Kong stocks' and does not want to see it dominated by mega mainland companies.

He also suggested that Hong Kong Exchanges and Clearing should compile its own index.

Since HSI Services, a unit of Hang Seng Bank responsible for compiling the index, announced in February its intention to include Hong Kong-traded, mainland-registered companies, the market has speculated that China Construction Bank Corp would become the first to join in August.

With other mainland lenders, such as Bank of China and Industrial and Commercial Bank of China, queuing up to list in Hong Kong later this year, the index could be dominated by Chinese financials, forcing out blue chips such as Bank of East Asia.

Mr Li admitted: 'There would be some impact on our stock [if it was ousted from the index].'

However, he added, as more and more mainland companies joined the index, it would 'affect the whole market'.

Vincent Kwan Wing-shing, a director and general manager at HSI Services, said the firm was constantly looking at the compilation of the index and taking into account different opinions.

A Hong Kong stock exchange spokeswoman said there already were other indices, such as the S&P/HKEx LargeCap, compiled by the exchange and Standard & Poor's, which reflected the top 25 companies in terms of market capitalisation.

However, whether such an index would become the benchmark purely depended on the market's recognition.

Bank of East Asia shares, which have risen 32.2 per cent this year, closed at $31 yesterday, a 0.32 per cent fall on the previous close. It traded at 1.93 times book value.

Mr Li believes the stock is undervalued, citing the case of Dao Heng Bank - now DBS (HK) - which had fewer branches and overseas operations than Bank of East Asia, and was sold for more than three times its book value in 2001. He said the relative low value of his bank was 'a little bit disappointing'.

Meanwhile, Mr Li said his bank was heading for another record-breaking year as all the business lines were performing well.

'The businesses in the mainland and overseas have done well, while growth in Hong Kong is slow. However, we haven't lost our market share,' he said.

Mr Li said the bank would further expand through acquisitions either in Hong Kong or overseas as opportunities arose.

'We are looking at [acquisitions] in asset management, wealth management and insurance. If there is any bank or finance company up for sale in Hong Kong, we are also interested in buying.'

The bank is also keen to buy a building in Shanghai's Pudong district to act as a flagship for its mainland business operations and also a new home for the sub-branch in Puxi.

Bank of East Asia and Woori Bank, the second-largest commercial bank in South Korea in terms of capital, yesterday announced the signing of a strategic business co-operation agreement in Beijing.