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Friday, Jun 21, 2024

Foreign firms would become blue chips under new proposals from HSI compiler

Foreign firms would become blue chips under new proposals from HSI compiler

Move to allow foreign companies that can match capitalisation and turnover requirements to become constituent stocks of HSI could help city attract more international listings.
Foreign companies with a primary listing status in Hong Kong will qualify to become blue chips on the benchmark Hang Seng Index under new proposals, in a move analysts say will attract more international companies to list in the city.

Index compiler Hang Seng Indexes unveiled proposals on Wednesday that would allow foreign companies in Hong Kong that can match capitalisation and turnover requirements, to become constituent stocks of the Hang Seng Index. It will collect views until May 31.

“The proposal would be in line with Hong Kong’s position as an international financial centre,” said Daniel Wong, director and chief index officer at the Hang Seng Indexes Company, in a telephone interview with the South China Morning Post.

Since 2021, the index compiler has expanded the number of constituent stocks from 50 to 76 and has an eventual target to reach 100, without a timeline. The Hang Seng Index is tracked by index fund managers with total assets under management of US$20.34 billion as of March this year.

“At present, foreign companies are not allowed to be added to the Hang Seng Index,” Wong said. “The proposal to add in the foreign companies to join the blue chips will reposition the HSI from being a representation for Greater China companies listed in Hong Kong, to a broader representation for the overall Hong Kong stock market.”

The move to allow foreign companies to become blue chips comes at a time when bourse operator Hong Kong Exchanges and Clearing (HKEX) is seeking more international listings. The exchange will open an office in London in the first half of this year, following hot on the heels of a New York office opened in December.

HKEX signed an accord with Saudi Tadawul Group Holding in February during Chief Executive John Lee Ka-chiu’s visit to the Middle East, which could lay the foundation for Middle East companies, such as Saudi Aramco, to list shares in Hong Kong, brokers said. The oil company’s US$29.4 billion listing in 2019 on the Tadawul stock exchange remains the world record holder for stock offers.

At present, there are 68 foreign companies listed in Hong Kong – a more than tenfold increase in the past 13 years, according to Hang Seng Indexes data. However, most of them are very small in size, said Wong, adding that the new proposal would aid future development of the market when the city achieves more international listings.

The broader Hang Seng Composite Index, which has 572 constituent stocks, contains only six foreign firms since it first began accepting foreign firms as constituent stocks in 2018.

Italian fashion brand Prada is the largest with a market cap of HK$142 billion, followed by Russian firm Rusal at HK$59 billion and Yancoal Australia at HK$41 billion. The other three are US luggage firm Samsonite with a market cap at HK$35 billion, French cosmetics firm L’Occitane at HK$29 billion and Cambodian casino operator NagaCorp at HK$27 billion.

Shares in L’Occitane, Samsonite, Yancoal and NagaCorp were made accessible to mainland China investors last month in an expanded Stock Connect cross-border trading scheme for international firms listed in Hong Kong.

“Large foreign companies may be more incentivised to list in Hong Kong with the possibility of being included as a constituent of the Hang Seng Index,” said Stephen Chan, a partner at international law firm Dechert.

HKEX’s main board was the world’s largest initial public offering (IPO) market seven times in the past 14 years but it dropped to seventh place in the first quarter of 2023. More international listings would help Hong Kong climb back to the top of the league table, brokers said.

Internationally, the benchmark indexes of Australia, France, Germany, Singapore, South Korea and the Nasdaq-100 also allow foreign firms to be constituent stocks. However, the Dow Jones Industrial Average and the S&P 500, as well as the UK’s FTSE 100 Index, do not accept foreign companies.

“This change can boost Hong Kong’s appeal as a global financial hub and encourage international firms to list here,” said David Chang, founder and chief executive of start-up focused venture-capital firm MindWorks.

“[It] aligns with the government’s focus on promoting the new economy. By attracting innovative foreign companies, Hong Kong can become a hub for cutting-edge industries and foster economic growth in sectors like technology, biotech, and green finance.”

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