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Original title: Hang Seng index will welcome a series of major reforms, top-line stocks will rise to 80 by the middle of next year
The Hang Seng Index has always been recognized as the “barometer” of the Hong Kong stock market. The Hong Kong market is a mature market. There are many types and numbers of publicly traded companies and with sufficient depth. The HSI believes that increasing to 100 is simply an appropriate goal.
The Hang Seng Index Company announced on March 1 that after a one-month consultation period, it will increase the number of constituent stocks commonly known as “top-line stocks” from 52 to 80 by mid-2022, and the final number will be fixed. at 100.
“There is no specific timetable on when it will increase to 100. The Hong Kong market is a mature market. There are many types and numbers of publicly traded companies, and there is enough depth. We believe that increasing to 100 is just an appropriate target.” . Hang Seng Index Director Huang Weixiong, also director of research and analysis, told the media on March 1.
Since its launch in 1969, the Hang Seng Index has been recognized as the “barometer” of the Hong Kong stock market. At the beginning of its launch, the Hang Seng Index had only 33 constituent stocks. It wasn’t until 2007 that H shares were included, and the number of constituent shares increased to 38. Since then, the Hang Seng Index has gradually expanded, rising to 50 in 2012, to 52 in December last year, and to 55 on the 15th. March of this year.
The upper limit of the component’s share weighting is unified at 8%
Currently, the Hang Seng Index primarily analyzes its component stocks by market capitalization, and candidate companies typically trade for at least 2 years. The index is calculated based on the weighted market value of the market. The upper limit of the weighting of the individual components is set at 10% and the upper limit of the weight of the second-listed shares or the same with weights other than 5%.
Hang Seng Index Company proposes to unify the upper limit of the weighting of existing constituent shares, reducing it from the existing 10% to 8%, and apply it to the same shares with different rights or second listed constituent shares. The top five constituent stocks currently account for 41.1% of the index. Therefore, the performance of the Hang Seng Index may be affected by the prices of these large constituent stocks. After the change, the proportion of these five constituent stocks will drop to 36.1%.
He said that almost 80% of those interviewed support this opinion, believing that this movement is expected to improve the concentration of pesos in the Hang Seng index. The market is already relatively familiar with companies with different rights to the same share and second listing. Business. This reform will take effect in June of this year.
Tan Shaoxing, president of the Hong Kong Investor Institute, believes that the 8% cap is more in line with the standards of international funds. This proposal will change the Hang Seng index from “non-invertible” to “invertible.” He pointed out that many fund managers were unable to increase the investment ratio of individual stocks to more than 8%, and that individual stocks in the Hang Seng index reached the upper limit of 10%. As a result, some funds were unable to actively track constituent stocks of the Hang Seng Index in the past.
After the implementation of the above recommendations, you will be able to reduce the weight of large-scale constituent stocks, which will make the composition of the Hang Seng index more diversified. This means that the weights of AIA and Tencent, which currently account for almost 10% of HSI, will decline, while the shares of Alibaba and Meituan will continue to rise.
The Hang Seng Index simulation results show that when the number of constituent stocks increases to 80, the market value of the Hang Seng Index will exceed 33 trillion yuan, an increase of 25% from the end of January; the price-earnings ratio will increase. to 19.1 times. The market value coverage rate will reach 71.2%, an increase of 14.7 percentage points from the end of January; the billing coverage rate will reach 66%, an increase of 15.8 percentage points from January.
At the same time, to maintain the representativeness of Hong Kong companies, Hang Seng Index Company will keep the number of relevant shares between 20 and 25, which will be reviewed every two years. During the consultation period, 60 responses were received from 55 institutions, including traders, investment brokers, asset holders, and a number of other categories.
Shorten time to market
Since the Hong Kong Stock Exchange launched the new stock market reform in 2018, a large number of New Economy companies and Chinese-concept corporations have flocked to the Hong Kong stock market. However, some recently listed stocks have a higher market value than the existing constituent stocks of the Hang Seng Index, but because they did not meet the minimum listing time requirements, they could not be considered in the Hang Seng Index review, prompting heated discussions. in the market.
Therefore, the Hang Seng Index announced that it will shorten the listing history requirement, and the listing history requirement will be reduced to three months, which will take effect from the index revision in May this year. This means that in the future, it is not necessary to list large new stocks for at least 3-24 months, which will help some large Chinese concept stocks to accelerate listing.
“The current listing history requirements are relatively rigid. For example, the top five companies only need to wait 3 months, while the sixth company needs to wait 6 months. It is not a simple and rigid requirement. Shorten the listing history requirement it means that more companies can enter the market, “said Huang Weixiong.
At the same time, he noted that the relaxation of the historical time requirements for the listing of the constituent shares is expected to make the constituent shares of the Hang Seng index “younger.” According to 21st Century Business Herald reporter access to information, the current 25 constituent stocks have been listed for over 20 years and the 19 constituent stocks have been listed for over 10 years. In contrast, if the number of constituent shares is increased to 80, seven companies have been listed for less than a year, and four companies have been listed for 1-2 years.
On August 14 of last year, Hang Seng Index Company launched the most significant reform in the past 15 years. In the new quarterly review report, it was announced for the first time that the constituent shares were included in the same shares with different rights and second listed shares. Alibaba, Xiaomi Group and WuXi Biologics were included in the Hang Seng index, while Meituan Dianping unexpectedly lost the election.
The proportion of the financial industry will decrease
To enable the Hang Seng Index to reflect the Hong Kong stock market in a more balanced way, the stocks that make up the Hang Seng Index will be selected from seven industry groups. The goal is to make the market value coverage of each industrial group no less than 50%. The composition of the industry groups will be reviewed at least once every two years.
These seven industries include the financial industry, the information technology industry, non-essential consumption, essential consumption, the real estate construction industry, utilities, the telecommunications industry, the healthcare industry, the energy industry, raw materials industry, industry and integrated enterprises.
He said frankly that certain industries in the HSI, such as consumer staples, utilities and telecommunications, account for less than 5% of the market value. Therefore, the HSI believes that combining these industries and selecting the constituent stocks will be more feasible and meaningful. Taking the telecommunications and utilities industries as an example, the number of constituent shares is 29 and 9 respectively, and their market capitalization ratios are respectively 3.3% and 2.8%.
For a long time, the finance industry in HSI’s constituent shares has been too big and has been criticized by the market for not “keeping up with the times.” According to the HSI simulation test, if the number of constituent stocks increases to 80, the financial industry share will drop from the current 40.3% to 32.8%, which is closer to actual market conditions.
In fact, the Hong Kong stock market has undergone major structural changes in the last 15 years. The total market value of the Hong Kong stock market in 2005 was only HK $ 8.2 trillion, but by 2020 the total market value has risen to HK $ 45.6 trillion, an increase 458%. Among them, the market value of mainland companies increased from 41.6% to 79%, and the information technology industry also surpassed the financial industry in 2019 to become the largest industry in the stock market From Hong Kong.
(Author: Zhu Lina Editor: Chenqing Mei)
