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A-shares

Li & Fung out, Geely in as HSI reshuffles Hang Seng Index

First H-share listing, Tsingtao Brewery, to be replaced by Postal Savings Bank, as the index compiler plans to add more red chips and private enterprises to reflect China’s market

PUBLISHED : Friday, 10 February, 2017, 9:43pm
UPDATED : Friday, 10 February, 2017, 9:43pm

Trading firm Li & Fung will be replaced by mainland car maker Geely Automobile Holdings as a constituent stock in the Hang Seng Index from next month, according to index complier Hang Seng Indexes Company.

Separately, Tsingtao Brewery – the first H share listed in Hong Kong in July 1993 – will be removed from the H-share index, officially called the Hang Seng China Enterprises Index. Its constituent position will be replaced by Postal Savings Bank of China which had the largest initial public offering in Hong Kong last year, the index compiler said on Friday night.

The changes were decided upon after its quarterly review conducted at the end of December and will come into effect from March 6.

Louis Tse Ming-kwong, director of VC Brokerage, said the changes made sense.

“Geely is a major car maker in China. Its share price performance and market cap is big and would strengthen the Hang Seng Index as a reflection of the most important stock listings in Hong Kong,” Tse said.

“Li & Fung’s share price and business are not doing very well recently. It’s no surprise for it to be removed from the benchmark index.”

Tse noted that while Tsingtao Brewery may have a historical role to play as the first H share listed in Hong Kong, nowadays it has more major shareholders overseas. “In contrast, the Postal Saving Bank is a state owned lender while its market capitalisation is much bigger,” he added.

Companies that are added to stock indices usually see a boost to their share price performance because Hong Kong’s Exchange Traded Fund tracks index weightings and will add the new constituent stock to its portfolio and reduce holdings of those stocks removed from the index.

The number of constituent stocks that make up the Hang Seng Index and H-share index remain unchanged at 50 and 40 respectively.

Hang Seng Indexes Company also said on Friday that it wanted to change the composition of the Hang Seng China Enterprises Index by gradually adding more red chips and privately owned mainland companies to the index, in addition to the H shares.

Many e-commerce giants are private enterprises so they could not be added to the H-share index under the current requirements
Louis Tse Ming-kwong, director of VC Brokerage

H shares are state-owned enterprises listed in Hong Kong while red chips are companies incorporated in Hong Kong but they have a mainland Chinese parent.

The index company said the proposed changes, which will be explained in more detail in August, were aimed at meeting market participants’ requests for a “China index of the Hong Kong market”.

As for the Hang Seng China Enterprises Index being known as the H-share index, this was for “historical reasons [as] it only includes H shares as constituents”, the index compiler said, noting that adding red chips and privately held mainland enterprises would widen the scope.

“This is necessary as we have seen an increasing number of private enterprises getting more and more important,” said Tse. “Many e-commerce giants are private enterprises so they could not be added to the H-share index under the current requirements. The change will address the trend where we will see more new economy companies list in Hong Kong.”

Hang Seng Indexes said it would consult with market participants and stakeholders to get their input on issues such as the number of index constituents and the method of implementation.

“Hang Seng Indexes will ensure that changes to the HSCEI will be gradual to minimise any potential impact on the market,” the index compiler said.

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