Some unlucky Hang Seng Index (HSI) constituents could find themselves demoted from Hong Kong's flagship index soon - not due to some Lunar New Year monkey business but because of the quarterly review by index kingmaker HSI Services.
The perks of elevation for those chosen to be among the select 33 members of the blue-chip index include a higher profile and often a higher share price as index tracker funds have to own them. But one group of companies can forget this beauty parade. H shares, the darlings of the market last year, are deemed too foreign for inclusion.
Although everyone seemed happy with the fat fees and first-day profits generated by recent H-share offerings, that will not get them an invitation to the top table.
Instead, H shares (state-owned companies incorporated in China) have their own index, the Hang Seng China Enterprises Index. Promotion to the HSI is deemed a non-starter due to the classes of A shares in China and the non-tradeable block of shares held by the state.
Rules may be rules but it still seems counter-intuitive that China's largest state-owned mobile phone company, China Mobile, can make it into the HSI, while its largest fixed-line carrier, China Telecom, cannot.
Here, right of abode depends on where you are incorporated, not where your business and profits are earned. As such, China Mobile and China Unicom are naturalised red chips, not H shares. But despite what their prospectuses say, they are cut from the same cloth.
Is the 75 per cent held by the mainland government in China Mobile really any more tradeable than the 75 per cent it holds in China Telecom?