HONG KONG (BLOOMBERG) - A new index focused on China's technology giants is set to give investors greater access to their growing dominance in Hong Kong's market.
The new index will track the 30 largest tech companies listed in the city. The Hang Seng Tech Index will include Tencent Holdings, Alibaba Group Holding, Meituan Dianping and Xiaomi. The gauge would have achieved returns of 36.2 per cent for 2019 and 35.3 per cent for the first half of this year, according to compiler Hang Seng Indexes.
The move comes at a time when further listings of Chinese technology firms are in the pipeline, such as Jack Ma's Ant Group, following those of NetEase and JD.com. Listing closer to home has become more attractive as tensions between Washington and Beijing threaten to curtail Chinese companies' access to US capital markets.
The compiler of the Hang Seng Index has already embraced change through moves such as scrapping a weighting limit for dual-class shares on some of its gauges. The tech index is seen helping investors bridge a gap between a Hong Kong benchmark overstuffed with old economy banks and insurers, and the technology companies that have emerged as big winners in the city's beaten-down market.
"There are too many laggards in the Hang Seng Index," said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong. "With overseas-listed Chinese firms deciding to list closer-to-home, the Hong Kong market falls short in terms of having a representative index for these stocks. This new index serves to fill this gap and drive capital flows."
Citi analysts led by Pierre Lau wrote in a recent note that the index will attract investors to other Hong Kong tech stocks, facilitate the issuance of index-linked funds and derivatives as well as boost turnover at Hong Kong Exchanges & Clearing. That stock is up 42 per cent this year, most in the Hang Seng Index.
Supported by strong mainland inflows through stock connect links, Chinese technology shares have emerged as big winners in Hong Kong this year. Tencent has surged 41 per cent while Meituan is up 87 per cent.
The Hang Seng Index, on the other hand, has underperformed. It's fallen 12 per cent this year, with half of its members down at least 20 per cent.
Morgan Stanley sees the new technology gauge providing a bigger sentiment boost near-term to the MSCI China Index than the Hang Seng, which has few components that will also be in the tech index. "The direct stock-level positives cannot translate into a meaningful index-level boost," analysts led by Laura Wang wrote.