Hong Kong Hang Seng Index Revamped After 52 Years: What Changes Are Coming?

[Asia Economy Reporter Song Hwajeong] As a major overhaul of the Hang Seng Index (HSI), the representative stock index of the Hong Kong stock market, approaches, attention is focusing on the inclusion of stocks and market impact.

According to DB Financial Investment on the 29th, the Hang Seng Index revision will take effect from the 7th of next month. The Hong Kong Stock Exchange announced the index overhaul in March for the first time in 52 years and released the review results on the 21st.

The Hang Seng Index is a stock index calculated based on the top blue-chip stocks listed on the Hong Kong Stock Exchange (HKSE) by Hang Seng Bank, a subsidiary of HSBC. Launched in 1969 with 33 stocks, the Hang Seng Index expanded to 38 stocks in 2007, 50 stocks in 2012, 52 stocks in 2020, and increased to 55 stocks in the quarterly adjustment this March. Kim Sun-young, a researcher at DB Financial Investment, said, "While Hong Kong IPOs have increased, the fixed number of around 50 constituent stocks has shown limitations in representing the index," adding, "As of January, the market capitalization of the Hang Seng Index accounted for only 56.5% of the total market capitalization of the Hong Kong stock market."

With this revision, the number of constituent stocks will expand from the current 55 to 80 by June 2022 and eventually increase to 100. Starting this month, constituent stocks will be selected across seven sectors: financials, information technology, essential and non-essential consumer goods, land and construction, public utilities and telecommunications, healthcare, and energy, materials, industrials, and conglomerates. Each group’s market capitalization will be maintained above 50%, and sector composition will be reviewed at least every two years. Currently, the index is concentrated in only four sectors: financials, public services, real estate, and industrials and commerce. The listing period will also be shortened, reducing the IPO time from a minimum of 24 months to 3 months. To maintain the representation of Hong Kong companies, 20 to 25 Hong Kong company stocks will be maintained, with the number reviewed every two years. The weighting of constituent stocks will also be improved. Starting in June, the maximum weight for all stocks will be capped at 8% (down from 10%), and this will also apply to the Hang Seng China Enterprises Index.

Through this revision, new stocks such as Chinese electric vehicle maker BYD, solar energy company Xinyi Solar, and real estate company Biguiyuan will be newly included in the Hang Seng Index constituents. The Hang Seng China Enterprises Index will be adjusted from 51 to 50 stocks, with BYD and Evergrande Group’s Evergrande Logistics Services, China’s largest real estate developer, added. The Hang Seng Tech Index will be adjusted from 31 to 30 stocks, with online shopping mall Chitoseja and game platform company Bilibili newly included.

Researcher Kim said, "By next year, the number of newly included stocks will be 25, with attention focused on sectors such as IT, healthcare, and large and small consumer goods," adding, "Although some stocks may face passive fund outflows due to the downward adjustment of weights, stocks exceeding 8% are already rare, so the overall impact on the index will be minimal." He continued, "With only one week left before the revision is first applied, attention will focus on the newly included stocks next week."

This content was produced with the assistance of AI translation services.