Hang Seng Index may bid adieu to old money

Business | Bloomberg and Kevin Xu 14 Aug 2020

Some old economy stocks in traditional sectors such as Swire Pacific (0019, 0087) risk getting expelled from the benchmark Hang Seng Index, to make way for some new economy stocks, when Hang Seng Indexes Company releases the results of the second quarter review of the Hang Seng Family of Indexes today.

"Swire Pacific is one of the stocks that are likely to be excluded from the HSI," said Kenny Wen, a strategist with Everbright Sun Hung Kai. "Even if the property market outlook turns stable, we don't see any signs of recovery for its aviation and marine businesses in the near term."

Along with Swire Pacific, other firms that face the risk of losing membership are Sino Land (0083) and CK Infrastructure (1038), due to their relatively low free-float-adjusted market cap and small trading volume, according to CGS-CIMB analysts.

Swire Pacific's shares have taken a hammering as last year's protests and the coronavirus pandemic hurt both its airline business as well as retail and real estate operations. The stock has lost 43 percent in 2020, the biggest decline among the Hang Seng Index's 50 constituents, reducing its market value to HK$58 billion and making it the least valuable member on the gauge.

Additional pressure stems from the flood of Chinese technology firms listing in Hong Kong. Three such companies - Alibaba (9988), Meituan Dianping (3690) and Xiaomi (1810) - will be eligible to join the Hang Seng Index after its compiler allowed firms carrying unequal voting rights and dual-class shares to join the benchmark. The move is seen as a crucial update for a gauge overstuffed with old economy banks and insurers.

Market capitalization and turnover are among factors the compiler of the Hang Seng Index considers when reviewing membership. The results of the next review will be announced after the market closes on Friday. About US$30 billion (HK$234 billion) in pension fund assets and exchange-traded funds track the index.

HSBC (0005), another British firm that was a founding member of the Hang Seng Index, is the second-worst performer on the gauge this year with a 42 percent loss.

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