Analysts react to changes in Hong Kong’s Hang Seng Index

A person wearing a protective mask will pass the Hong Kong Stock Exchange (HKEX) sign on display at the Hong Kong Exchange Square in China on Wednesday, August 19, 2020.

Roy Liu | Bloomberg via Getty Images

According to Min-Chen of Somerset Capital Management, this week’s announcement of the rise in Hong Kong’s stock index is a “positive move” that could help diversify risk.

“We believe it ( Hang Seng Index) The new methodology is a good way to prevent over-focusing on risk and is very effective in helping passive investors, “said Chen, CNBC’s StreetSigns Asia, on Tuesday, the company’s portfolio manager for China’s strategy. I told him.

Passive investment is a long-term investment strategy aimed at minimal trading and often involves investing in a fund that tracks the barometer of the market.

His comments came after the index editor, Hang Seng Indexes Company, announced on Monday. Tweak Hong Kong’s major equity benchmarks.. The decision was made after a month of consultation with stakeholders, the company said.

In the press release, the Hang Seng Index Summary of 5 major changes in Hang Seng Index.. The changes will be implemented from the May index review.

  1. Increase the number of components to 100. The ultimate goal is to include 100 companies in the index, and the goal is to increase the number of HSI constituents to 80 by mid-2022. The index currently has about 55 components.
  2. Select a component from seven industry groups. These range from finance and information technology to healthcare. The goal is to achieve at least 50% coverage for each industry group by market capitalization.
  3. Shorten list history requirements: This has been reduced to 3 months and may reduce the time it takes for a new list to be added to the index.
  4. Maintain a representative of Hong Kong companies: Approximately 20 to 25 constituents classified as Hong Kong companies will be maintained at HSI and the number of constituents will be revalued at least every two years.
  5. Lower the weight cap to 8%. All HSI members, including weighted voting rights or secondary listings, are subject to a weighted cap of 8%. Members with weighted voting rights or secondary listings are currently limited to 5%, and other members are limited to 10%.

In the release, Anita Moe, CEO of the Hang Seng Index, said, “The new enhancements to HSI will add more wording and make the index more balanced and diverse. Would be. “

Hong Kong’s benchmark index has made a good start so far this year, rising more than 9% from January at the closing price on Wednesday.

Portfolio manager Chen said the new changes will increase Hang Seng’s exposure to the new economic sector and maintain a reasonable amount of diversification.

He noted that the weighting cap had dropped to 8%, which was much lower than other indicators. He cited the MSCI China Index as an example. Alibaba And Tencent Cumulatively accounts for more than 30% of the weighting.

Investor reaction

Goldman Sachs noted that investors are likely to redistribute their portfolios in light of the Hang Seng Index review.

“If HSI increases the number of constituents to 80 and applies an 8% weight cap to all stocks, the current top index constituents will be re-allocated because the index weight will be recapped at 8%. We may see the spills caused, “Goldman analysts said in a note on Tuesday.

… We anticipate that the enhanced HSI index, which has expanded index coverage and high exposure to New China, may attract more capital to track as a benchmark.

Meanwhile, weighted voting rights or secondary listed companies — in addition to potential new additions In Index — If the index cap is raised from 5% to 8%, a “massive inflow” can occur.

Companies that currently weigh more than 8% in the Hang Seng Index include game giant Tencent and life insurance companies. AIA, According to the Hang Seng Index data.

Goldman Sachs analysts said, “In addition to the portfolio redistribution flow, the enhanced HSI index, which has expanded index coverage and high exposure to New China, will be tracked more as a benchmark. We expect it to attract capital. “

“As the number of index components reaches 80, the index cap can increase by 25%, so tracking HSI (assets under management) is projected to increase proportionally from the current approximately $ 20 billion to $ 25 billion. I’m doing it, “they said.

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Analysts react to changes in Hong Kong’s Hang Seng Index

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