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Hang Seng Indexes Co. is considering far-reaching changes to Hong Kong’s benchmark stock index that would dilute the influence of its largest companies.
The five proposals include maintaining “a certain number of components classified as Hong Kong companies,” according to a 16-page report. consultation paper released Tuesday. Hang Seng is also considering increasing the number of companies to between 65 and 80, as well as limiting the weights to 8% and speeding up new listings. The index currently has 52 members with weights capped at 10%.
The broad proposal comes amid significant shifts in the city’s stock market, as a wave of Chinese megacaps choose the financial center as a preferred location to sell stocks. Hong Kong’s benchmark index is near its lowest level against the MSCI world index in 17 years, and the indicator The abundance of financial stocks in the old economy has made it look outdated at a time when China’s tech giants have growing influence.
“The point of an index is to represent the local market, not the local economy,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai Co. “So yes, the benchmark will inevitably lose its Hong Kong color. The index could have higher valuations and greater volatility if these changes lead to the inclusion of more technology and health care firms. It will be easier to trade. “
Launched in 1969, the Hang Seng Index started with 33 constituents, and rose to 38 in 2007 when it began to include H-share companies. In 2012, it expanded to 50 and the index covered approximately 60% of the aggregate market capitalization in that time, a number unchanged until this year.
The share of mainland companies rose to 79% of the index this year from 41.6% in 2005, according to the Hang Seng consultation paper.
Hang Seng is requesting comments on the proposals until January 24. The changes would affect tens of billions of dollars in assets from pension funds and exchange-traded funds that track the index.
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