16,700pc returns in 50 years makes HSI best in world

Business | Bloomberg 25 Nov 2019

A mirror to Hong Kong's fortunes since its launch in 1969, the Hang Seng Index has also become a reflection of China's economic rise, with a 16,700 percent return in 50 years making it the world's best.

Yesterday, the benchmark stock gauge marked 50 years since its official debut.

Commencing as the city recovered from Communist riots two years earlier, it has served as a yardstick for Hong Kong's rise and its rebounds from various crises - a trait being tested anew as pro-democracy protests convulse the territory.

Currently, it's up by around 16,700 percent since 1969, (the index was backdated to July 1964 on its release).

In that time its constituents have evolved from local firms to an embrace of mainland Chinese names that now account for more than half of its market value.

"The Hang Seng Index has become a proxy of China's economy," said Jackson Wong, asset management director at Amber Hill Capital. "It's no longer a pure reflection of Hong Kong."

In August 1992, what's now known as CITIC (0267) became the first Chinese company to join the gauge. Today the majority of companies on the index get their revenue from mainland China.

The gauge's correlation with the Shanghai Composite Index has been hovering near a record high. Between 2001 and 2019, two Hang Seng heavyweights Tencent (0700) and China Mobile (0941) were the biggest contributors to gains.

The index will need to continue adapting, said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Asset Management. A wider embrace of Chinese mid-cap stocks is needed to stave off competition from rivals such as MSCI and FTSE Russell, he added.

"I'm still bullish on China's large-caps, but this segment is more mature," said Kwong. "I'm more positive on China mid-caps, the opportunities for growth are there. If the Hang Seng Index can be more flexible, it will do well."

Hang Seng Indexes Co says it is planning a consultation in the first quarter to review the presence of financial stocks, which currently account for about half the weight on the gauge. That compares with an average of 19 percent of its peers in Europe, United States, Japan and mainland China.

It will also discuss including firms that have shares with different voting rights, held by technology companies like Alibaba (9988) - one of the reasons Hong Kong lost out to New York in 2014 for the company's initial public offering.

Alibaba's HK$88 billion Hong Kong debut could provide a "shake up of the Hang Seng Index," if it becomes a member, said Bloomberg Intelligence analyst Steven Lam. AIA Group (1299) and HSBC (0005) would likely to see their weightings reduced in the event, he said.

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