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Hang Seng Index revamp sees inclusion of Li Ning, Xinyi Glass and China Merchants Bank as benchmark compiler avoids Big Tech

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The compiler of Hong Kong's main stock index added a mixed bag of consumer, finance and manufacturing firms to the Hang Seng benchmark during its quarterly review, avoiding most of the internet and Big Tech companies targeted by China's regulators.

Chinese sportswear retailer Li Ning, glassmaker Xinyi Glass Holdings and China Merchants Bank will become constituent stocks of the Hang Seng Index from next month, Hang Seng Indexes said in a statement on Friday. It will remove Bank of Communications from the index.

"It makes sense for Hang Seng to avoid adding more Big Tech stocks in the benchmark since China's regulatory [scrutiny and crackdown] are still going on," said Jeffrey Chan Lap-tak, a founding partner of Oriental Patron Financial Group. "The consumer stocks are likely to be the winners in the near term as the country is promoting retail and private consumers."

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The third-quarter review, effective September 6, broadens Hang Seng's coverage to 60 from the current 58, going part of the way towards the compiler's aim of enlarging the benchmark to 80 constituents by mid-2022. The index will eventually grow to 100 stocks, Hang Seng said, without providing a timetable for the increase.

The Hang Seng benchmark has fallen 9.5 per cent so far this year, making it the world's third-biggest decliner out of 92 global indices. The China Enterprise Index (CEI), which tracks the performance of China-domiciled companies listed in Hong Kong - including such Big Tech stocks as Kuaishou Technology and JD.com - plunged 18.5 per cent in the same period.

Internet-related stocks in China's Big Tech sector have been hit particularly hard since July, as a slew of regulatory scrutiny involving antitrust, cybersecurity and data usage have heightened the uncertainty for investors, driving them away from the stocks.

The three additional stocks will have a combined weighting of 4.15 per cent on the Hang Seng Index, with China Merchants Bank the biggest at 2.2 per cent, Li Ning second at 1.65 per cent and Xinyi Glass at 0.48 per cent.

The three new additions will add a combined market capitalisation of HK$631.81 billion (US$81 billion) to the HSI family. Bank of Communications, which will be removed, has a market cap at HK$158.95 billion and a weighting of 0.33 per cent in the index.

People walk past a Li-Ning store in Beijing. The Chinese sportswear retailer has been included in the Hang Seng Index. Photo: AFP alt=People walk past a Li-Ning store in Beijing. The Chinese sportswear retailer has been included in the Hang Seng Index. Photo: AFP

Li Ning, an eponymous brand founded by a former Olympic gymnast in 1990, is expected to benefit from a five-year mass fitness programme introduced on August 3 that targets growing China's sports industry to 5 trillion yuan (HK$6 trillion) by 2025.

Li, who won three gold Olympic gold medals in 1984, said in his company's results announcement last week that he believed the demand for sports and health consumption will be boosted by Chinese consumers' growing attention to health and fitness in the post Covid-19 pandemic era. The company's shares price declined 6 per cent to HK$89.20 on Friday before the index inclusion was announced.

Xinyi Glass, which supplies carmakers such as Ford, General Motors and Volkswagen, also manufactures glass for buildings. The company was founded in 1988 and listed in Hong Kong in 2005. The company's shares fell 4 per cent on Friday to HK$27.70.

China Merchants Bank is the latest inclusion into the Hang Seng Index. Photo: Reuters alt=China Merchants Bank is the latest inclusion into the Hang Seng Index. Photo: Reuters

Shenzhen-headquartered China Merchants Bank, founded in 1987, has over 500 branches in China. It offers both retail and corporate banking services. Its shares dropped 2 per cent to HK$64.75 on Friday.

After the third-quarter review, the three biggest constituents of the Hang Seng will be insurer AIA, online games publisher and social media network operator Tencent Holdings, and e-commerce giant Alibaba Group Holding, each with 8 per cent weight.

As part of the revamp, Hang Seng Indexes will also ensure that between 20 and 25 Hong Kong companies are among the constituent stocks so as to prevent their representation from falling as more Chinese companies are added to the benchmark. The index currently has 24 Hong Kong firms and 34 Chinese companies.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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