China Resources Land Latest China Stock in Hang Seng (Update2)
February 08, 2010, 5:14 AM EST(Updates closing share prices.)
By Emily Chan
Feb. 8 (Bloomberg) -- China Resources Land Ltd., a state- controlled developer, will become the latest Chinese company to join Hong Kong’s Hang Seng Index following a quarterly review of the city’s benchmark stock gauges.
The company’s inclusion from March 8 will raise the number of stocks in the measure to 43 from 42, Hang Seng Indexes Co. said in an e-mailed statement on Feb. 5. Sweeping changes were announced for the Hang Seng China Enterprises Index, which measures so-called H shares. Four companies including China Minsheng Banking Corp. and Metallurgical Corp. of China Ltd. will join, while eight stocks will be deleted.
“The Hong Kong market is becoming more and more influenced by the China market,” said Danny Yan, a portfolio manager at Taifook Asset Management Ltd. in Hong Kong, which oversees $400 million. “This shows the importance of the Chinese economy.”
The representation of mainland companies in Hong Kong’s stock market has leapt since the U.K. returned control of the territory to China in 1997. Chinese companies made up 48 percent of the market capitalization of the Hong Kong exchange’s main board as of Jan. 31, up from 16 percent at the end of 1997, according to the bourse’s Web site. The city’s $2.2 trillion stock market is Asia’s third-biggest after Japan and China.
The index amendments announced on Feb. 5 will likely prompt funds that mirror the gauges, including the $4.9 billion Tracker Fund of Hong Kong, to adjust their holdings in the days leading up to the date the changes take effect. China Resources Land added as much as 2.9 percent in early Hong Kong trade today before falling 2.9 percent to close at HK$15.04.
The changes announced to the H-share index incorporate revised criteria Hang Seng Indexes announced in November and will result in the number of constituents dropping to 40 from 44.
Changing Universe
“We cut four members as 40 is enough to cover 90 percent of the H-share universe’s market value,” Vincent Kwan, director and general manager of Hang Seng Indexes, said in a phone interview on Feb. 5.
The maximum weighting of members on the H-share index will be capped at 10 percent instead of 15 percent, the Hang Seng Indexes statement said. The universe of stocks eligible for the China enterprises index will also change to those H shares primarily listed on the Hong Kong stock exchange’s main board. Previously, H shares within the 201-member Hang Seng Composite Index were eligible.
China Resource Land’s inclusion in the Hang Seng Index will attract buying of HK$382 million ($49 million), said Sandy Lee, Nomura Holdings Inc.’s head of equity quantitative strategies for Asia excluding Japan. The company stood out from eligible candidates as having the highest combined market value and liquidity rankings, Lee’s team wrote in a Jan. 26 report.
Free Float
The company’s market capitalization has risen 79 percent to HK$73.56 billion from HK$41.2 billion a year ago, according to data compiled by Bloomberg. The stock has climbed 67 percent in that time, beating the Hang Seng Index’s 49 percent increase.
The index announcement also incorporates a change in the calculation of the so-called free-float adjusted factor, a measure of how much stock a company has available for trade.
That will see Bank of Communications Ltd.’s representation on the Hang Seng Index fall to 0.92 percent of the gauge from 2.07 percent, according to the Feb. 5 statement. Bank of China Ltd.’s weighting will drop to 4.32 percent from 5.44 percent.
Bank of Communications “could see a bigger negative liquidity impact owing to the FAF decrease, with estimated passive selling of roughly HK$713 million,” Nomura’s Lee wrote in an e-mail on Feb. 5.
The average daily trade in BoCom shares over the past 10 days was HK$403.4 million, according to data compiled by Bloomberg. BoCom dropped 1.5 percent to HK$7.41, as of the close. BOC lost 1.4 percent to HK$3.59.
ZTE, Sinopharm
Minsheng Bank, the country’s first privately owned lender, may attract HK$314 million of buying ahead of its inclusion in the Hang Seng China Enterprises Index, while Metallurgical Corp., a construction and engineering company, may lure HK$144 million, Nomura’s Lee said.
ZTE Corp., a phone equipment maker, and Sinopharm Group, the country’s largest drug distributor, were the other two additions to the H-share index. ZTE shares have climbed 150 percent in the past year, while Sinopharm’s have surged 96 percent from its initial public offering price in September.
Minsheng Bank dropped 0.9 percent to HK$7.71. Metallurgical Corp. shed 0.9 percent to HK$4.22. ZTE fell 4.6 percent to HK$43.80, and Sinopharm lost 3.7 percent to HK$30.20.
The companies that will be removed from the H-share gauge are: Jiangsu Expressway Co., Harbin Power Equipment Co., Sinopec Shanghai Petrochemical Co., Maanshan Iron & Steel Co., Beijing Capital International Airport Co., China Communication Services Corp., China Shipping Container Lines Co., and China Molybdenum Co.
Jiangsu Expressway added 2.5 percent to HK$6.98, Harbin Power Equipment gained 0.5 percent to HK$6.10.
--With assistance from Weiyi Lim in Taipei. Editors: Darren Boey, Nick Gentle.
To contact the reporter on this story: Emily Chan in Hong Kong at echan107@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
