HSI50 Gains After New Index Lineup Announced

Alibaba Group Holding, Xiaomi Corp., and Wuxi Biologics Cayman Inc. will be taking the place of Sino Land Co., Want Want China Holdings, and China Shenhua Energy Co. on the list of 50 companies included in the city’s benchmark index. Surprisingly, Meituan Dianping didn’t make the cut this time around.

Since it was first published on July 31, 1964 with a base of 100 points, the Hang Seng index climbed to a record closing price of 33,154.12 on January 26, 2018. However, since that all-time peak, it has declined by 24 percent until last week’s close on August 14. Still, the uptrend over the past 50 years remains intact.

Looking ahead to September 7, 2020, the changes to the its list of 50 constituents could shift about US$30 billion worth of pension funds and ETFs that are linked to the index. The inclusion of these tech behemoths such as Alibaba and Xiaomi will also reduce the index’s reliance on financial stocks.

However, Alibaba will only account for a maximum of five percent of the index, which is the maximum allowed for secondary listings under the rules by Hang Seng Indexes. Recall that Alibaba’s shares listed in Hong Kong in November last year, some five years after it went public on the New York Stock Exchange. The lower weightage comes despite Alibaba’s market cap of HKD 5.3 trillion (US$ 680 billion) in Hong Kong being larger than Tencent’s HKD 4.85 trillion (US$ 630 billion) market value, as of August 14, 2020. Yet, Tencent accounts for some 11.2 percent of the index, AIA Group has a 10.5 percent weighting, with HSBC’s 8.5 percent weight rounding up the top three biggest members of the benchmark index. Still, market observers expect Alibaba’s weightage to gradually be increased.

With this change in three weeks, perhaps it could be the catalyst for the index to break out its multi-year slump and keep it above its 200-day simple moving average (SMA). After all, the HSI50 has clearly lagged its regional peers, despite gaining some 20 percent since its March 19 trough which was its lowest level since 2016. For comparison, the MSCI Asia Pacific index and Alibaba’s stocks in Hong Kong both climbed 40 percent respectively since March 19.

The addition of Alibaba and Xiaomi could help the HSI50 reflect the outperformance of tech stocks amid the pandemic. After all, the tech sector has been the driving force behind the S&P 500 nearing its record-high of late, despite the economic woes wrought upon by the pandemic.

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