Hang Seng Index announced on March 1 that after a month of consulting period, the number of constituent stocks commonly known as "blue chip stocks" will increase from the current 52 to 80 by mid-2022, and the final number will be fixed to 100.
"When will it increase to 100, there is no specific timetable. The Hong Kong market is a mature market with a large number of listed companies and sufficient depth. We believe that increasing to 100 is just a suitable goal," said Wong Weixiong, director and head of research and analysis at Hang Seng Index, to 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, and it was not until 2007 that it began to be included in the H shares, and the number of constituent stocks increased to 38. Afterwards, the Hang Seng Index gradually expanded, increasing to 50 in 2012, to 52 in December last year, and to 55 on March 15 this year.
component weight limit is uniformly 8%
At present, the Hang Seng Index mainly screens out constituent stocks based on market value, and candidate companies have usually been listed for at least 2 years. The index is calculated based on the market value of circulation. The upper limit of weight of individual constituent shares is set at 10%, and the upper limit of weight of constituent shares listed or shares with different rights is set at 5%.
Hang Seng Index Company recommends that the upper limit of the weight of existing constituent stocks be unified, and the upper limit of the existing constituent stocks will be reduced from 10% to 8%, and it will be applicable to the same shares or the second listed constituent stocks. Currently, the top five constituent stocks account for 41.1% of the index, so 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 nearly 80% of respondents supported this opinion, believing that this move is expected to improve the concentration of weight of the Hang Seng Index. The market is already relatively familiar with companies with different rights and second-listed shares. The reform will take effect in June this year.
Tan Shaoxing, chairman of the Hong Kong Investors Association, believes that the 8% ceiling is more in line with the international fund's guidelines, and this suggestion will change the Hang Seng Index from "not investable" to "invested" index. He pointed out that many fund managers are unable to increase the investment proportion of individual shares to more than 8%, while some Hang Seng Index constituent stocks have reached the upper limit of 10%, which has led to some funds being unable to actively track Hang Seng Index constituent stocks in the past.
After the above suggestions are implemented, the weight of large constituent stocks will be able to reduce the weight of large constituent stocks, thus making the Hang Seng Index's constituent stock portfolio more diversified. This means that the weight of AIA and Tencent , which currently account for nearly 10% of the Hang Seng Index, will be reduced, while the proportion of Alibaba and Meituan will be further increased.
The simulation results of the Hang Seng Index company 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-to-earnings ratio will increase to 19.1 times. The market value coverage ratio will reach 71.2%, an increase of 14.7 percentage points from the end of January; the transaction volume coverage ratio will reach 66%, an increase of 15.8 percentage points from January.
At the same time, in order to maintain the representativeness of Hong Kong companies, Hang Seng Index will maintain the number of relevant shares at about 20 to 25, and will be reviewed every two years. During the consultation period, 60 responses were received from 55 institutions, including traders, investment brokers, asset holders and other categories.
shorten listing time limit
Since the Hong Kong Stock Exchange launched the new stock reform in 2018, a large number of new economy companies and Chinese stocks listed in the listed company companies flocked to the Hong Kong stock market. However, some newly listed stocks have larger market value than the existing components of the Hang Seng Index, but they have caused heated discussions in the market because they did not meet the minimum listing time requirements and were not considered in the Hang Seng Index review.
Therefore, the Hang Seng Index announced that it will shorten the listing history requirements, and the listing history requirements will be shortened to three months, and will take effect in May this year's index review. This means that in the future, large new stocks do not need to be listed at least 3 months to 24 months. This move will help some large Chinese stocks to accelerate their inclusion.
"The current listing history requirements are relatively rigid. For example, the top five companies only need to wait 3 months, while the sixth-ranked companies need to wait 6 months. It is not a simple hard requirement. Shortening the listing history requirements means that more companies will enter the market," said Huang Weixiong.
At the same time, he pointed out that relaxing the historical time requirements for constituent stocks is expected to "rejuvenate" the Hang Seng Index constituent stocks. According to the information reviewed by reporters from 21st Century Business Herald, the current listing period of 25 constituent stocks exceeds 20 years, and the listing period of 19 constituent stocks has been listed for more than 10 years. In contrast, if the number of constituent stocks is increased to 80, 7 companies will have less than 1 year of listing time and 4 companies will have 1-2 years of listing history.
On August 14 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 stocks were included in the same shares and the second listed individual stocks. Alibaba , Xiaomi Group, and WuXi Biologics were included in the Hang Seng Index, while Meituan Dianping was unexpectedly defeated.
The share of the financial industry will be reduced
In order to enable the Hang Seng Index to reflect the Hong Kong stock market more evenly, the Hang Seng Index constituent stocks will be selected from seven industry groups, with the goal of making the market value coverage of each industry group no less than 50%. The composition of the industry group will be reviewed at least once every two years.
These seven major industries include finance, information technology, non-essential consumption, essential consumption, real estate construction, utilities, telecommunications, health care, energy, raw materials, industry, and comprehensive enterprises.
He admitted that the market value of some existing industries such as essential consumption, utilities, telecommunications, etc. account for less than 5%. Therefore, the Hang Seng Index company believes that it would be more feasible and meaningful to merge these industries and select constituent stocks. Taking utilities and telecommunications as examples, the number of constituent stocks is 29 and 9, and the market value accounts for 3.3% and 2.8% respectively.
For a long time, the financial industry among the Hang Seng Index constituent stocks accounted for too much and was criticized by the market for not being able to "keep up with the times." According to the Hang Seng Index mock test, if the number of constituent stocks is increased to 80, the proportion of the financial industry will drop from the current 40.3% to 32.8%, which is closer to the actual market situation.
In fact, the Hong Kong stock market has undergone significant structural changes over the past 15 years. In 2005, the total market value of the Hong Kong stock market was only HK$8.2 trillion, while in 2020, the total market value has surged to HK$45.6 trillion, an increase of 458%. Among them, the market value of mainland companies increased from 41.6% to 79%, and the information technology industry surpassed the financial industry in 2019 and became the largest industry in the Hong Kong stock market.
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Author | Zhulina
Editor | Chen Qingmei
Editor | Jin Shan
