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Written by: Yang Yingwei
2021-02-27 09:00
Last update date: 2021-02-27 09:00
The Hang Seng Index Company conducted a consultation on the composition reform of the Hang Seng Index in mid-December last year and is scheduled to announce the results next Monday (March 1).
Among them, it is recommended that the Hang Seng Index should expand the number of constituent stocks to 65 or 80, and "maintain the representativeness of Hong Kong companies."
However, looking closely at the ranking of the existing 52 constituent stocks, most of the mainland new economy companies that supported the Hang Seng Index's 30,000 points earlier have little to do with Hong Kong's traditional blue chips.
If the Hang Seng Index is to maintain the representativeness of local companies, in addition to reforming the index components, it should also consider how to cultivate competitive Hong Kong companies.
In addition, the HSI reform is related to the future of Hong Kong as a "Chinese" international financial center. The inclusion of constituent stocks should be clearly determined in order to help Hong Kong's corporate layout and build Hong Kong's strategic role in China's development blueprint.
Hang Seng Index hits record high, Hong Kong enterprises go downhill
Compared with 2005, the total market value of the Hong Kong stock market has increased from 8.2 trillion yuan to 45.6 trillion yuan in 2020, an increase of 458%. The Hang Seng Index recently broke the 30,000 mark repeatedly.
In the past 15 years, the Hong Kong stock market has undergone two major changes: First, it has evolved from a market structure dominated by mainland companies from dry and Hong Kong companies each accounting for "half of the country." Its market value has increased from 41.6% to 41.6%. 79.0%; Second, after the Hong Kong Stock Exchange reformed the listing system in 2018, a large number of emerging information technology companies from the Mainland came to Hong Kong for listing, which promoted the change in the structure of the entire stock market from being dominated by the old economy to the new economy. It surpassed the financial industry and became the industry with the largest market capitalization in the Hong Kong stock market, reaching 35.4%.
The Hang Seng Index broke 30,000 points in one fell swoop.
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Liao Qun, chief economist of China CITIC Bank (International), believes that the Hang Seng Index, as a gauge of the stock market, will inevitably need to be adjusted in response to the performance of companies in the market. This has also led to "the Hang Seng Index now more reflects the status of the mainland information economy ".
He said that this change is an "inevitable" and "natural" process.
First, from a procedural point of view, "HSI is adjusted according to stock performance. If it is not active or weak, it will be kicked out, and emerging stocks that perform well will come in. This result is new economy stocks, especially the emerging Internet industries. A lot of people have come in.” Secondly, the global industry is upgrading, and this is particularly prominent in China. The soaring stock market value of China Probably has its logical support. “China is a rising new information economy, and emerging industries are growing. Faster, the traditional ones are eliminated faster.”
In the past month, under the strong performance of the mainland's new economy enterprises, the Hang Seng Index frequently broke 30,000 points, and the frozen capital of new stocks has repeatedly set new highs.
Compared with the resilience and prospects of the mainland's new economy enterprises, the conservative Hong Kong blue chip stocks are gradually losing ground.
As of February 19, among the current 52 constituent stocks, the five companies with a market value of more than one trillion are Tencent, Alibaba, Meituan, China Construction Bank and AIA. Hong Kong companies have long since disappeared.
Earlier, Kuaishou Technology was listed with a market value of trillions. In contrast, the five major Hong Kong real estate developers with traditional blue chips only exceeded half of their market value
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According to Liao Qun's analysis, there are two reasons for the high market value of new economy enterprises.
The first is the global "water release", "The epidemic has brought about a long-term economic recession. Global governments, especially developed countries, have "unlimited" quantitative easing in order to preserve the economy. And market demand has not grown, so money has increased. But not much has flowed into the real economy, and they have all flowed into the high-quality assets on the stock market.” Second, the stock market requires imagination, “People who buy stocks buy the future and buy growth. Even if you are now (volume) It’s very big, you don’t grow up to buy what you are useless.” New economy companies that come to Hong Kong to go public cater to the trend of social technological progress and have a bright future. In contrast, traditional blue chips have a long history and healthy funds, but they have limited room for development. Investors naturally "vote." To the new economy.
The conservative economic model of Hong Kong enterprises depends on the appearance?
At the end of last year, the HSI put forward the "Proposal to Optimize the "Hang Seng Index" to Continue to Be the Most Representative and Important Market Benchmark in the Hong Kong Market". One goal is to "maintain a certain number of constituent stocks of classified Hong Kong companies." Although the market value of Hong Kong enterprises has gradually declined, because "the Hang Seng Index is the main benchmark of the Hong Kong stock market", the HSI should maintain "a certain degree of Hong Kong regional representativeness."
However, Liao Qun pointed out that Hong Kong’s capital market reflects the limited capacity of the local real economy. However, as Hong Kong is an international financial center and a financing center for mainland enterprises, it is reasonable for local companies to account for a relatively small share of the capital market. "If most of them are local companies, , On the contrary, the function of the international financial center will gradually weaken."
Having said that, the Hang Seng Index is just an arena for adhering to the principle of "survival of the fittest".
Looking at the constituent stocks of the Hang Seng Index that passively follow changes in the capital market, it is not difficult to see the continual decline of Hong Kong companies, as well as the conservative and lagging Hong Kong economy.
It is not difficult to foresee that if Hong Kong only relies on the façade efforts of revising the HSI’s entry threshold and index model, it will actually be difficult for the capital market index to "maintain the representativeness of Hong Kong companies," because the crux that needs to be resolved is the solidification of Hong Kong’s economic structure. problem.
"This requires Hong Kong's economy to be diversified." Liao Qun said, "If the financial industry is still developed and all others are weak, not many (Hong Kong companies) can squeeze in (the Hang Seng Index)," because Hong Kong is an international financial In the center, the financial industry still has room for development. It is not ruled out that there will be new enterprises appearing. "However, Hong Kong is still unable to compete with the large number of new economy enterprises in the Mainland by relying on only one industry. Diversification."
Liao Qun suggested that Hong Kong "walks on two legs" should no longer rely on the dividends brought by the role of the outer circulation hub, but also look at the mainland market and actively participate in the "inner circulation."
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The upgrading and diversification of local industries are naturally moving towards a new economy and cultivating local technological innovation enterprises. However, limited by the deformed industrial structure, it is difficult for Hong Kong, which has lost industry for many years, to achieve "integration of production and research." Horned beasts such as DJI Innovation and SenseTime have flowed to Shenzhen.
In this regard, Liao Qun emphasized that although Hong Kong has begun to focus on the development of the information economy, such as the establishment of the Innovation and Technology Bureau, it is obvious that there is no environment conducive to science and technology innovation: "It is still not comparable to Shenzhen. It has a vast mainland market. Dongguan and Huizhou are both its manufacturing bases. Although Hong Kong's universities have strong research capabilities, they still stay at the theoretical level. If there is theory and no application, who will buy your stuff?"
Liao Qun suggested that Hong Kong "walks on two legs" should no longer rely on the dividends brought by the role of the outer circulation hub, but also look at the mainland market and actively participate in the "inner circulation."
"If you want to make a breakthrough in science and innovation, you can only do it from the inside. It is the cooperation between Shenzhen and the Greater Bay Area. It is impossible to cooperate with Malaysia and Singapore. They do not have such an industrial environment." Liao Qun said with a smile, "You For the industrial environment, you can cooperate with Silicon Valley, but the United States is so far away that you may not be allowed to go. There is a ready-made science and technology center next to Silicon Valley. Hong Kong can take advantage of its own basic research and Shenzhen’s Combining industrial advantages and blazing a new path."
Clarify the definition of "Hong Kong company" taking into account the development strategy of Hong Kong and the country
Having said that, the HSI reform is not "useless". According to the "Consultation Document", if the constituent stocks are expanded from the current 52 to 65 to 80, and the two years of listing history and other conditions are deleted, it can help the HSI to change. Scientifically reflect the situation of the stock market.
Liao Qun even believes that the HSI restructuring is intended to guide the structural development of the Hong Kong stock market: "By emphasizing the'representation of the Hong Kong region', more Hong Kong companies will be included in the consideration of the HSI, so as to guide and cultivate local companies."
However, what is a "Hong Kong company" under the definition of the Hang Seng Index?
Is a "Hong Kong company" a "local company"?
The reporter once inquired with the Hang Seng Index Company via email, but the other party did not respond positively.
Afterwards, the reporter checked the "General Rules for Index Compilation" of the Hang Seng Index Company and found that the HSI Company classified Hong Kong-listed securities by region as follows:
Interestingly, according to the "General Rules for Index Compilation", both foreign and local Hong Kong companies are included in the index model as "Hong Kong companies" without distinction.
This is because the "General Provisions" divides listed companies into two categories: "Foreign Companies" and "Greater China Companies" by region. The former refers to those registered outside Greater China such as Hong Kong, Macau and Mainland China, and the main business is from Greater China. Companies outside of the region; the latter is further divided into "Hong Kong securities" and "Mainland securities", where "Hong Kong securities" refers to Hong Kong companies whose income is more than 50% from the mainland of China, and their profits and asset distribution will be taken into account ——So, those companies that set up offices or branches in Hong Kong but whose parent company is US-funded or British-funded, such as AIA, HSBC Holdings, Budweiser Asia Pacific, etc., are also equivalent to "Hong Kong Securities" under "Greater China Company" ".
The question is, if the "Hong Kong company representativeness" of the Hang Seng Index is maintained on this basis, can it truly reflect the "regional representativeness" of the index?
In other words, if the Hang Seng Index Company further reforms Hengsheng’s shareholding, it does not update the geographical classification to clarify the definition of "local Hong Kong enterprises" and "foreign Hong Kong enterprises", then the index reform will also provide limited guidance for local enterprises and the economy.
Secondly, since half of the Hang Seng Index is currently supported by Chinese companies, Hong Kong will not only be an "international Hong Kong", but also a "China's international Hong Kong."
In the "Consultation Document", the Hang Seng Index Company proposed to reduce the weight limit of constituent shares from 10% to 8%; and standardize the weight limit of existing constituent stocks and non-equity/secondary listed constituent shares to 8%, and proposed to cancel The two-year listing time requirement for eligible candidate constituent stocks; the outside world is generally optimistic, which may prompt more mainland new economy companies to turn into "blue chips." Liao Qun also believes that the HSI reform can promote Hong Kong's capital market to further integrate with the Chinese economy.
Secondly, since half of the Hang Seng Index is currently supported by Chinese companies, Hong Kong will not only be an "international Hong Kong", but also a "China's international Hong Kong."
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For Hong Kong, this is a good opportunity to cater to the national strategy and consolidate its status as an international financial center.
"Hong Kong, as a "Chinese" international financial center, definitely needs more and more mainland enterprises to come to Hong Kong for financing, so that the functions of Hong Kong's international financial center can be brought into full play." Liao Qun emphasized, "(Hong Kong) must be connected to the inside and the other. Outside. The mainland market is very large, and there is a lot of money outside. The combination of the two is Hong Kong's advantage."
The active reform of Hong Kong's financial industry is of strategic significance to the future development of China's economy.
From a financing perspective, the Hong Kong stock market can effectively divert domestic companies queuing for listing and absorb international capital.
Liao Qun explained, "The capacity of the domestic stock market is limited, and the queue time is too long. Even the best companies will have to line up... Since the mainland is so competitive and Hong Kong can go public relatively smoothly, companies are naturally willing to come to Hong Kong. "From the perspective of internationalization and modernization, Hong Kong is a mature "international financial center," and the degree of internationalization of the stock market is higher than that of Shenzhen and Shanghai. "The listing of companies in Hong Kong is also good for their long-term development." The publication of quarterly reports, semi-annual reports, and annual reports are all international standards. After the publication, there are international economic analysts to analyze business operations, which can promote the modernization of corporate management and financing."
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