Hang Seng looks to overhaul Hong Kong stock benchmark

Hong Kong — Hang Seng Indexes is considering wide-ranging changes to Hong Kong’s stock benchmark that would dilute the influence of its largest companies.

The five proposals include maintaining “a certain number of constituents classified as Hong Kong companies”, according to a 16-page consultation paper released on Tuesday.

Hang Seng is also considering increasing the number of companies to between 65 and 80, as well as capping weightings at 8% and fast-tracking new listings. The index currently has 52 members with weights limited to 10%.

The sweeping proposal comes amid significant changes within the city’s stock market, as a wave of Chinese mega-caps choose the financial hub as a preferred venue to sell shares. Hong Kong’s benchmark index is near its lowest level compared to the MSCI world index in 17 years, and the gauge’s abundance of old-economy financial stocks has made it look outdated in an age when China’s tech giants have increasing sway.

Launched in 1969, the Hang Seng started out with 33 constituents, rising to 38 in 2007 when it began to include H-share firms. In 2012, it expanded to 50 with the index covering roughly 60% of the aggregate market capitalisation at the time, a number unchanged until 2020.

The proportion of mainland companies increased to 79% of the index in 2020 from 41.6% in 2005, according to Hang Seng’s consultation paper.

Hang Seng is soliciting feedback to the proposals up to January 24. The changes would affect tens of billions of dollars in pension fund assets and exchange-traded funds that track the index.

Bloomberg