China Life and ICBC rally on blue-chip hopes
Shares in China Life Insurance and Industrial and Commercial Bank of China rebounded yesterday on expectations that they will be added to Hong Kong's blue-chip index after a quarterly review early next month.
China Life yesterday rose 4.57 per cent to HK$24.05, ending a three-day losing streak. Shares in ICBC rose 1.32 per cent to HK$4.62, after dropping 7.88 per cent in the previous four days.
The chance of both H shares being added to the Hang Seng Index 'is great, given their mammoth market values', said Eddie Wong, the chief Asian strategist at ABN Amro. 'As China Life has completed its A-share listing, it is now eligible for inclusion.'
China Life, the country's biggest life insurer, this month offered 1.5 billion new A shares to raise about 28.3 billion yuan in an initial public offering in Shanghai.
ICBC will contribute 6.1 per cent to the Hang Seng Index and China Life 3.7 per cent, according to a report by BNP Paribas analyst Winner Lee.
Their contributions would further climb to 8.5 per cent and 5.2 per cent after a third-quarter review in September, Mr Lee said.
ICBC would rank third on the index when the constituent rebalancing takes effect from March 2 and China Life would rank fifth before being promoted to fourth-largest after the September changes.
Shares of a company are expected to rise when included in the Hang Seng Index as they will be bought by passive funds, holding as much as HK$45.6 billion, that track the 36-member benchmark.
Passive funds would spend up to HK$2.8 billion to buy up to 594 million ICBC shares and HK$1.71 billion for 66.5 million China Life shares, Mr Lee said.
ICBC and China Life will join blue chips China Construction Bank Corp, Bank of China and Sinopec Corp to complete a five-stock quota for H shares in the index.
China Overseas Land & Investment, meanwhile, would replace either PCCW or Cheung Kong Infrastructure Holdings as a non-H-share constituent, Mr Lee said.
CKI was more likely to be removed given its poorer liquidity and lower free float, he said. Shares in China Overseas ended 2 per cent higher at HK$9.20 yesterday.
HSI Services will announce the results of its first-quarter review of the Hang Seng Index and H-share index on February 9.