Hang Seng Index Overhaul

Hang Seng Indexes Co. announced its biggest-ever overhaul in March, which includes boosting the total number of components to 80 from 55 by mid-2022, adding firms from underweight sectors and reducing the impact of the city’s biggest companies.

HSI’s compiler has been looking to lower the weight of financial stocks in the index to better represent the stock market, where the technology sector overtook financials to become Hong Kong’s biggest sector by market value in 2019. AIA Group Ltd. and Tencent Holdings Ltd. currently have the heaviest weighting on the gauge at around 10% each.

Analysts expect the first batch of new HSI constituents will be selected from industries that are currently under-represented, such as consumer and healthcare sectors.

About $16 billion worth of exchange traded funds track the HSI, according to data compiled by Bloomberg. The changes to be announced on Friday will take effect from the market open on June 7.

Hang Seng is also expected to lower the maximum weighting for a single stock to 8% from 10%. That means the index’s current biggest members — AIA, Tencent and HSBC Holdings Plc, all of which have a weighting of over 8% — will see their influence in the benchmark drop.

Hang Seng is expected to add five stocks every quarter through mid-2022 in order to reduce market volatility.

Reference

Bloomberg, 2021-05-21, “Hang Seng Index to Take First Steps in Biggest-Ever Overhaul”