HONG KONG (BLOOMBERG) - Hong Kong's stock index compiler is rolling out the red carpet for new listings in its China gauge, just days before the biggest initial public offering of all time.
Hang Seng Indexes Co will fast-track new listings into its China Enterprises, Composite and Tech gauges - meaning Jack Ma's Ant Group could be eligible to join them in as little as 10 trading days after its dual debut in Hong Kong and Shanghai. Previously, stocks needed to be listed for at least one calendar month before they could be added to the Hang Seng China Enterprises Index, which is down 11 per cent this year.
Under the new rule, Ant could join the China Enterprises Index as soon as the market close on Nov 18, if the company's market value ranks within the top 10 of current members. The cutoff is currently about HK$1 trillion (S$176 billion), and based on its IPO price Ant's shares would be valued at HK$2.4 trillion, according to a stock exchange filing last week.
The new rules make the China gauge "more representative," said Daniel Wong, director and head of research and analytics at Hang Seng Indexes. He added that the composition of the benchmark Hang Seng Index is also being reviewed, which comes after revamps this year.
For now the changes don't include the Hang Seng Index. It has fallen 13 per cent this year, in contrast to a gain of 15 per cent for China's CSI 300 Index and a 1 per cent rise for the S&P 500. It is near its lowest level versus the MSCI World Index in 17 years, and the gauge's abundance of old-economy financial stocks has made it look outdated in an age when China's tech giants have increasing sway.
"The Hang Seng Index is filled with laggards like financials. So it may not capture the best investment opportunities out there," said Kenneth Lau, a senior portfolio manager at BEA Union Investment Management. "That's why we are overweight mainland Chinese stocks and underweight Hong Kong stocks, because the growth outlook in China is much better."
For that gauge, stocks are currently required to have a minimum three months of listing history before possible inclusion. For a new stock to join, a current Hang Seng Index member has to make way. Swire Pacific and CK Infrastructure Holdings were among stocks seen at risk in August's quarterly review, in which Alibaba Group Holding and Xiaomi Corp were included, but both remain members for now.
In a statement dated on Monday (Nov 2), MSCI said it would add Ant Group's Hong Kong and Shanghai-listed shares to its indexes as of the close of November 30, coinciding with its semi-annual index review. It plans to evaluate the H shares for early inclusion to its MSCI China and MSCI China All Shares Indexes.
Ant is widely seen as eventually joining the Hang Seng Index, which would help its stock attract extra passive fund inflows in addition to the US$19.8 billion (S$27 billion) tracking the index as of end-September, according to data from Hang Seng Indexes. That compares to about US$5.4 billion following its China Enterprises index.
"It's just a matter of time before Ant is included in the Hang Seng Index," said Kenny Wen, a strategist at Everbright Sun Hung Kai. "The new rule reflects the index company's effort to lift the weighting of tech stocks and meet investors' needs."
