Hang Seng Indexes Company is revamping its benchmark Hang Seng Index to expand it to 100 companies and ensure a panoramic view of the range of listed firms. Currently, tech giant Tencent, life insurer AIA and investment banking company HSBC account for nearly 30 percent of the benchindex.

Share Market Live

NSE

As per the latest changes, the company will increase the number of constituents from 52 to 80 constituents by mid-2022 and eventually to 100. The decision came after a month-long consultation session with stakeholders.

The new constituents will now include companies from seven industries groups, from sectors such as healthcare, financials, IT, among others. This is in stark contrast to the current scenario in which financials seem to cover a significant part of the index constituents.

The new enhancements to HSI will further increase its representation and make it more balanced and diversified, CEO of HSI Co Ltd, Anita Mo, said in a statement.

The stakeholders have also decided to maintain some 20-25 Hong Kong companies in the HSI, subject to re-evaluation every two years.

HSI will also shrink the weighting cap on individual constituents to 8 percent (from 10 percent now). The exchange will also remove the lower weighting cap of 5 percent on companies whose shares offer different voting rights to the companies.

The company will also introduce a mechanism to make it faster to add new listings to the index by reducing the listing history requirement to three months.

According to experts, it is a positive move that could help investors diversify risks. "We believe that new methodology will be a good way to prevent overconcentration in the risks, and it’s very effective to help the passive investors," Somerset Capital Management’s Min Chen told CNBC.

Chen further said these changes would increase the exposure of the index to the new economy sector while maintaining a reasonable amount of diversification.

On the other hand, Goldman Sachs pointed out that investors might reallocate their portfolios following the overhaul. It said the index’s top constituents could see outflows, followed by reallocation as their index weights would be re-capped at 8 percent.

"In addition to the portfolio reallocation flows, we expect the enhanced HSI index, with its expanded index coverage and higher exposure to new China, could attract more capital to track it as the benchmark," the Goldman Sachs analysts said.

Goldman Sachs forecasted that assets under management tracking HSI could grow proportionally from $20 billion now to $25 billion due to an increase in the index cap.

(Edited by : Jomy)

First Published:Mar 4, 2021 4:12 PM IST