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Friday, Oct 02, 2020

Alibaba, Xiaomi, WuXi Biologics win green light to join the Hang Seng Index on September 7

Alibaba capped at 5 per cent of weighting; lower than Tencent capped at 10 per cent. Sino Land, Want Want China Holdings and China Shenhua Energy removed from index
Technology giant Alibaba Group Holding and mobile phone maker Xiaomi have won approval to become constituent stocks of the Hang Seng Index from September 7, becoming the first companies with weighted voting rights (WVR) or a secondary-listing in the benchmark index.

WuXi Biologics, China's largest drugs development and manufacturing services provider, will also be added to the 50 constituent stocks in the index.

The three firms will replace developer Sino Land, snack maker Want Want China Holdings, and China Shenhua Energy from the index. The changes show the benchmark index is shifting from traditional industries to new economy and biotech firms.

The decision, announced by index compiler Hang Seng Indexes Company on Friday in its quarterly review, is the biggest revamp of the 50-year-old Hang Seng Index since the inclusion of mainland companies listed in Hong Kong, known as H-shares, in 2006.

The addition of the trio of Chinese firms to the index will allow the 23 Exchange Traded Funds with US$20 billion of assets tracking the Hang Seng Index to invest in these companies for the first time, boosting their turnover and strengthening Hong Kong’s role as a fundraising hub, according to Gordon Tsui, chairman of Hong Kong Securities Association.

“Adding the tech giants into the Hang Seng Index is widely expected as they are now the most traded stocks and the largest companies in the market. The inclusion will ensure that the Hang Seng Index remains the benchmark index for tracking the biggest and most liquid stocks in Hong Kong,” Tsui said.

The move adds to the prominence of technology stocks in Hong Kong, which were highlighted when the index compiler introduced a Nasdaq-like Hang Seng Tech Index on July 27.

The index compiler announced in May that it would allow WVR, a shareholder structure that allows founders and key managers to own shares with more voting rights than others, and secondary-listed companies to qualify as constituent stocks of Hang Seng Index.

The weighting of these companies will be capped at 5 per cent each, below Tencent Holdings at 10 per cent which is now the largest stock in the index. For the secondary-listed companies, the index compiler will only count the shares registered in Hong Kong. Alibaba, which owns the South China Morning Post, had about 23 per cent of its issued shares registered in the city.

That would place Alibaba in sixth place of the 50-member index in terms of weighting, ahead of Hong Kong Exchanges and Clearing at 4.9 per cent and behind Tencent, AIA, HSBC, China Construction Bank and Ping An Insurance.

Xiaomi, with a weighting of 2.59 per cent, is in tenth place in the index, ahead of Bank of China and behind Industrial and Commercial Bank of China.

WuXi Biologics joined oil company CNOOC in 12th place with a weighting at 1.75 per cent.

Before the announcement, Alibaba dropped 0.6 per cent to close at HK$246.8 a share, while Xiaomi advanced 0.9 per cent to HK$15.3. The Hang Seng Index edged down 0.2 per cent to close at 25,183.01 points.

Food delivery firm Meituan Dianping, another WVR giant which was widely tipped to join the blue-chip index rose 4 per cent to HK$219.8 on Friday. Meituan, however, can still join as a constituent stock in the Hang Seng China Enterprises Index.

Alibaba is the largest listed company in Hong Kong in terms of market capitalisation at HK$5.297 trillion at Friday’s close (US$683.48 billion), representing 13 per cent of the market’s total market cap. Its share price has risen 40 per cent since its completed its secondary listing in Hong Kong in November.

Alibaba and Xiaomi have a combined market cap of HK$5.67 trillion (US$731.62 billion) on Friday, representing 14 per cent of the total market cap.

The inclusion of Alibaba in the Hang Seng Index will raise hopes that the mainland's authorities will admit the company into the Stock Connect schemes, Tsui said. The schemes allow investors in the mainland and Hong Kong conduct cross-border trading in stocks listed in Hong Kong, Shanghai and Shenzhen.

Mainland authorities have not yet allowed secondary-listed companies to join the connect schemes but WVR companies can join six months after their listings. Xiaomi and Meituan joined the connect scheme in October.
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