Home Asia News Hong Kong’s Hang Seng Index opens to “new economy” stocks

Hong Kong’s Hang Seng Index opens to “new economy” stocks

Hong Kong's Hang Seng Index opens to
Hong Kong Stock Exchange (Source: leungchopan / Shutterstock.com)
The Hang Seng Index, the main indicator of the market performance in Hong Kong, is opening up to “new economy” stocks. Launched in 1969, the index has been criticised for being overstuffed with old economy banks and insurers. As of September 7, 2020, Alibaba Group, Xiaomi and pharmaceutical research group Wuxi Biologics join the benchmark index.
The revamp is a milestone as it underlines Hong Kong’s market growing focus on Chinese technology stocks. The new entrants will replace food and beverage company Want Want China Holdings, China Shenhua Energy and developer Sino Land. The changes will help in diversifying the Hang Seng Index by reducing the weighting of the financial sector and adding more weight to the technology sector.
As Bloomberg reports, the move could also affect billions of dollars in pension fund assets and exchange-traded funds that track the index.
New Tech Index to strengthen Hong Kong further
The move follows greater deregulation of the Hong Kong exchange. Previously, shares with an initial listing on another stock exchange or different classes were excluded from  the index. These rules have been eased paving the way for more Chinese companies primarily traded in the U.S. now seeking a secondary listing in Hong Kong.

Listing at home is now also more attractive on the background of the increasing tensions between China and the United States. The US Senate has already passed a bill that could ban a lot of Chinese companies accessing the American exchanges.

What reflects this difficult environment Chinese companies are facing from the US government is the fact, that the US market will miss the potentially largest IPO in the world. Alibaba’s Ant Financial aims to go public in Shanghai and Hong Kong. The chinese FinTech company is looking for a valuation of $225 bn USD, based on an IPO of $30 bn USD.

And there is more on the tech market: In July, Hong Kong Stock Exchange already launched the Hang Seng Tech Index. The new index has the focus on China’s technology giants and features 30 of the biggest tech firms listed in Hong Kong. The current top five making up more than 40% of the index are Alibaba, Tencent, Meituan Dianping, Xiaomi and Sunny Optical.

Why the new Hang Seng Tech Index matters for investors

Analysts see Hong Kong’s market strengthened by the new tech index as it might encourage more tech companies to choose the attractive location for raising capital. According to Citi analysts, the new index is likely to draw some interest away from the tech-heavy US-Nasdaq and lead to more turnover at the Hong Kong stock exchange.

Furthermore, there could be index-linked funds issued. First ETFs to track the Hang Seng Tech Index are already on the horizon. According to the China Securities Regulatory Commission two Chinese managers have applied to launch such passive products: China Asset Management and Dacheng Fund Management. However, they will be aimed at mainland China investors.

According to Hang Seng Index company data, the new tech index would have achieved higher returns than the main Hang Seng Index, namely 36.2% and 35.3% for the full year of 2019 and the first half of 2020 respectively. The Hang Seng Index for the same periods reached 10.95% and -2.44%.