Three mainland Chinese firms entered the Hang Seng Index (HSI) on Monday in a landmark step that reflects the growing dominance of Chinese technology companies on Hong Kong’s stock market.
The 51-year-old index added e-commerce giant Alibaba Group, electronics and smartphone maker Xiaomi Corporation, and biotechnology firm Wuxi Biologics as constituents. The move gives more weight to “new economy” technology companies on the traditionally finance-heavy index.
Since the HSI’s last constituent shake-up in March 2019, “the Hong Kong stock market has changed a lot…the overall market structure is starting to change and this is creating more room for the new economy segment to rise to greater prominence,” according to HSI’s August 2020 review.
The report says “sizable newcomers” like unicorns, or private firms valued at over $1 billion, and overseas-listed Chinese companies have listed since March 2019 or plan to list in Hong Kong. The three Chinese tech companies were added to ensure the HSI “remains the most representative and reliable barometer of the Hong Kong market,” the report says.
The HSI also launched the tech-specific Hang Seng Tech Index in late July, another indication of tech firms’ increased sway on the city’s exchange. Besides Alibaba and Xiaomi, the biggest firms in the Hang Seng Tech Index are other mainland Chinese tech giants like shopping platform Meituan Dianping and gaming giant Tencent Holdings.
The addition of Alibaba and Xiaomi to the HSI continue Hong Kong’s efforts to make its exchange more attractive to big tech companies. An increasingly unfriendly regulatory environment in the U.S. has pushed several U.S.-listed Chinese firms to seek secondary listings in Hong Kong, and contributed, in part, to companies like Ant Group, the world’s most valuable unicorn, eschewing a U.S. listing altogether.
In adding the three tech companies on Monday, HSI, a 50-stock index, removed snack company Want Want China Holdings, mining firm China Shenhua Energy, and developer Sino Lan.
Alibaba and Xiaomi are the first companies with weighted voting rights to join the HSI.
According to a Sept. 6 Jefferies report, April 2018 listing reforms that allowed companies with weighted voting rights to list in Hong Kong led 99 tech, IT, and biotech companies to issue new shares representing 23% of Hong Kong’s total market capitalization.
The inclusion of Xiaomi and Alibaba in the HSI recognizes the effects of the reforms and the spate of secondary listings of companies that trade in the U.S., the report said.
“The HSI has begun to reflect these changes with [Xiaomi and Alibaba] being included…In our view, it is not unthinkable that the index will be expanded as more companies come to the market,” the Jefferies report said. “We remain bullish on the HSI.”
Alibaba listed in Hong Kong in November 2019, following a 2014 debut on the New York Stock Exchange; it is the first HSI constituent to have Hong Kong as a secondary listing. Xiaomi debuted in Hong Kong in July 2018, and Wuxi Biologics debuted in Hong Kong in June 2017.
