Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Smoore International Holdings / Event-Driven

On 1 March, Hang Seng Indexes (HSIL) announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main takeaways are an increase in the number of <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> constituents to 80 by mid-2022 and ultimately to 100, balanced representation across 7 Industry group with a market coverage of not less than 50%, a 3 month minimum listing history requirement, a representation of 20-25 Hong Kong companies in the index, and a rationalisation in the weighting cap to 8% for all stocks (including Secondary Listings and WVR Securities).There is no timeline of how HSIL intends to reach the 80 constituent target count by mid-2022 or to the 100 constituents beyond that. HSIL has not updated the index methodology file either which adds another layer of uncertainty.In this Insight we look at stocks that could be higher probability inclusions in the index at the June review based on the current index methodology and the proposed changes to the methodology and come up with 9 potential inclusions and 2 potential exclusions.

On 1 March, Hang Seng Indexes (HSIL) announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main takeaways are an increase in the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80 by mid-2022 and ultimately to 100, balanced representation across 7 Industry group with a market coverage of not less than 50%, a 3 month minimum listing history requirement, a representation of 20-25 Hong Kong companies in the index, and a rationalisation in the weighting cap to 8% for all stocks (including Secondary Listings and WVR Securities).There is no timeline of how HSIL intends to reach the 80 constituent target count by mid-2022 or to the 100 constituents beyond that. HSIL has not updated the index methodology file either which adds another layer of uncertainty.In this Insight we look at stocks that could be higher probability inclusions in the index at the June review based on the current index methodology and the proposed changes to the methodology and come up with 9 potential inclusions and 2 potential exclusions.

HSI Index Rebalance Preview: Potential Changes in June

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:<ul>
<li>Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>. </li>
<li>To have a more balanced representation of the Hong Kong stock market, the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.</li>
<li>To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.</li>
<li>There will be 20-25 'Hong Kong companies' in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> and this number will be evaluated at least every 2 years.</li>
<li>All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents as well.</li>
</ul>There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:
Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the Hong Kong Hang Seng Index (HSI INDEX). 
To have a more balanced representation of the Hong Kong stock market, the Hong Kong Hang Seng Index (HSI INDEX) constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.
To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.
There will be 20-25 'Hong Kong companies' in the Hong Kong Hang Seng Index (HSI INDEX) and this number will be evaluated at least every 2 years.
All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the Hang Seng China Enterprises Index (HSCEI INDEX) constituents as well.
There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

HSI Market Consultation: BIG Changes Coming

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, there are 2 inclusions and 4 exclusions. This brings the number of index constituents back down to 50.The inclusions are <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> and <a href="https://www.smartkarma.com/entities/nongfu-spring" target="_blank" data-smartkarma-citation="entities:28955:1" rel="noopener">Nongfu Spring (9633 HK)</a>, while the exclusions are <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a>, <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">PetroChina (857 HK)</a>, <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> and <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener">China Resources Gas (1193 HK)</a>.One-way turnover is estimated at 5.62% and will result in a one-way trade of HK$4.10bn. The highest impact is on <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> at 3.5 days of ADV to sell from passive funds, while <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener">China Resources Gas (1193 HK)</a> has almost 3 days of ADV to sell.There are only 10 trading days to implementation of the changes, but the changes were largely expected. We had <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> as a lower probability inclusion and <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> as a lower probability deletion, and there could be a larger impact on these two stocks.The conclusions of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> market consultation are scheduled to be announced on Monday, 1 March. Depending on the increase in number of index constituents and the changes to the index methodology, some of the HSCEI inclusions/ exclusions could be added to/ deleted from the HSI at the June review and could result in additional same way flow on the stocks.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng China Enterprises Index (HSCEI INDEX), there are 2 inclusions and 4 exclusions. This brings the number of index constituents back down to 50.The inclusions are Country Garden Services Holdings (6098 HK) and Nongfu Spring (9633 HK), while the exclusions are China Conch Venture Holdings (586 HK), PetroChina (857 HK), Hengan Intl Group (1044 HK) and China Resources Gas (1193 HK).One-way turnover is estimated at 5.62% and will result in a one-way trade of HK$4.10bn. The highest impact is on China Conch Venture Holdings (586 HK) at 3.5 days of ADV to sell from passive funds, while China Resources Gas (1193 HK) has almost 3 days of ADV to sell.There are only 10 trading days to implementation of the changes, but the changes were largely expected. We had Country Garden Services Holdings (6098 HK) as a lower probability inclusion and China Conch Venture Holdings (586 HK) as a lower probability deletion, and there could be a larger impact on these two stocks.The conclusions of the Hong Kong Hang Seng Index (HSI INDEX) market consultation are scheduled to be announced on Monday, 1 March. Depending on the increase in number of index constituents and the changes to the index methodology, some of the HSCEI inclusions/ exclusions could be added to/ deleted from the HSI at the June review and could result in additional same way flow on the stocks.

HSCEI Index Rebalance: Two In, Four Out Brings Us Back to 50; HSI Consultation Could Increase Flow

China Resources Beer Holdings / Event-Driven

Last evening, Hang Seng Indexes announced that the conclusions of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> market consultation will be released on 1 March. This means that the implementation of the changes using the new methodology will begin at the June 2021 review and conclude at the March 2022 review.With the results of the March 2021 review scheduled to be announced post market close tomorrow (26 February), the review will follow the current methodology. But with the leeway afforded to the index committee to decide on the stocks to be included/ excluded, stocks could be selected based on whether they will make the cut for inclusion based on the future methodology. This will also reduce the turnover at future reviews.The <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> already has 52 constituents and we expect this to increase further at the March review. We expect only inclusions and the number of stocks in the index could increase to 55-56. This too will reduce the turnover at future reviews. The stocks included at the March review will see a big impact since they will be included in one shot, as opposed to stocks included at the June review where the implementation will most likely occur in 4 tranches.Potential inclusions are <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a>, <a href="https://www.smartkarma.com/entities/china-resources-beer-holdings" target="_blank" data-smartkarma-citation="entities:399:1" rel="noopener">China Resources Beer Holdings (291 HK)</a>, <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>. Outside possibilities are <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-gas-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14315:1" rel="noopener">China Gas Holdings (384 HK)</a> and <a href="https://www.smartkarma.com/entities/longfor-properties" target="_blank" data-smartkarma-citation="entities:8149:1" rel="noopener">Longfor Properties (960 HK)</a>.

Last evening, Hang Seng Indexes announced that the conclusions of the Hong Kong Hang Seng Index (HSI INDEX) market consultation will be released on 1 March. This means that the implementation of the changes using the new methodology will begin at the June 2021 review and conclude at the March 2022 review.With the results of the March 2021 review scheduled to be announced post market close tomorrow (26 February), the review will follow the current methodology. But with the leeway afforded to the index committee to decide on the stocks to be included/ excluded, stocks could be selected based on whether they will make the cut for inclusion based on the future methodology. This will also reduce the turnover at future reviews.The Hong Kong Hang Seng Index (HSI INDEX) already has 52 constituents and we expect this to increase further at the March review. We expect only inclusions and the number of stocks in the index could increase to 55-56. This too will reduce the turnover at future reviews. The stocks included at the March review will see a big impact since they will be included in one shot, as opposed to stocks included at the June review where the implementation will most likely occur in 4 tranches.Potential inclusions are ENN Energy (2688 HK), China Resources Beer Holdings (291 HK), Country Garden Services Holdings (6098 HK). Outside possibilities are Haidilao (6862 HK), China Gas Holdings (384 HK) and Longfor Properties (960 HK).

HSI March Index Rebalance Preview - Last One Before New Methodology Kicks In

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

On 22 December 2020 post market close, Hang Seng Indexes (HSIL) released the consultation paper on the "Proposal to enhance the Hong Kong Hang Seng Index (HSI INDEX) as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants had until 24 January to submit their views to HSIL.HSIL are scheduled to announce the changes to the Hong Kong Hang Seng Index (HSI INDEX) as a part of the March review on 26 February. There is a high probability that the conclusions of the market consultation will be announced on the same day.Given some large new listings since then and the price movements on the stocks, we refresh our list of potential inclusions and exclusions assuming that HSIL go up to 65 names or 80 names.In both cases, the turnover is very high in percentage terms and in dollar terms. HSIL will need to implement the changes over 1 year.We continue to believe that the market will probably be fine with increasing the number of constituents to 65, but will likely balk at going up to 80 in one shot.Financials would see the largest decrease in weight, offset by gains in Information Technology, Consumer Discretionary, Properties, Healthcare, Consumer Staples and Utilities.

HSI Market Consultation - Name Changes as We Await the Conclusions

Hong Kong

China Gas Holdings Ltd. invests in, operates and manages natural gas distribution pipelines.  The Company distributes and sells natural gas to residential, commercial and industrial users, and bottles and sells compressed natural gas.  China Gas also constructs and operates gas stations.

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China Gas Holdings (384 HK)

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