The Hang Seng Index topped 30,000 for the first time in a decade on Nov. 22 amid a market sea change that is bringing mainland Chinese companies to the fore and leaving many big local names behind.
The Hong Kong benchmark ended the day at 30,003.49, up 0.62%. It has gained 36% year to date, outpacing major indexes in Japan, South Korea, India and Singapore. The gains have been “driven first and foremost by Western investors,” said Sze Tung, asset manager at Victory Securities.
Alex Wong Kwok-ying of Ample Capital additionally cites an influx of money from the mainland, where “investors have capital to spare.” Funds flow in via stock connect links established with Shanghai three years ago and with Shenzhen last December.
Much has changed since the Hang Seng last topped 30,000 in November 2007, including an increase in the number of constituents from 40 to 50. Mainland companies now make up half the index, up from 38% a decade ago, and will become a majority in December when a reshuffle will add Sunny Optical Technology (Group) and Country Garden Holdings.
The main engine powering the Hang Seng’s ascent also hails from the mainland: Tencent Holdings. The Shenzhen-based internet conglomerate listed in Hong Kong in 2004 and joined the benchmark index in June 2008. It tops the Hang Seng’s weighting list at 10.75%, beating such traditional Hong Kong powerhouses as HSBC Holdings and CK Hutchison Holdings.
Tencent shares have more than doubled this year, buoyed by a number of positive factors, including China’s large internet user base, the release of mobile game “Glorious Mission” and news of the company taking a substantial stake in Snap, the American operator of photo- and video-sharing app Snapchat. Tencent’s market capitalization recently exceeded $500 billion, a first for an Asian enterprise. The milestone saw Tencent briefly surpass Facebook to become the world’s fifth-largest business by market cap.
Tencent is not the Hang Seng’s only mainland-based standout. Geely Automobile Holdings’ shares have nearly quadrupled this year and those of Apple supplier AAC Technologies Holdings more than doubled.
DROPPING OFF THE MAP
Hong Kong-based companies, meanwhile, are fading into the background. Prominent names such as PCCW — the telecommunications company run by Richard Li Tzar-kai, younger son of tycoon Li Ka-shing — and Li & Fung, known for sourcing Chinese products for U.S. retail behemoth Wal-Mart Stores, have dropped off the benchmark index. Cathay Pacific Airways, Hong Kong’s de facto flag carrier, will lose its decades-old blue chip status in December.
Mainland businesses, including both H-share companies based on the mainland and “red chips” incorporated in Hong Kong, are latecomers to the territory’s bourse. They gained a foothold in the early 1990s as China sought to work around diplomatic sanctions imposed by Western powers after the 1989 Tiananmen Square crackdown and to get its reform and opening-up policy back on track.
The first H-share listing came in July 1993 with the Hong Kong debut of Tsingtao Brewery. A watershed followed in September 2006 with the inclusion of China Construction Bank (CCB) in the Hang Seng Index — the first H-shares to make it to the big leagues.
Mainland companies increasingly favor Hong Kong as a listing destination for its better access to global investment capital and more predictable regulatory framework. These enterprises have a growing presence in the Hong Kong market as a whole. A total of 378 mainland Chinese businesses were listed there as of the end of October, including 226 H-share listings, accounting for almost 40% of the bourse’s total market cap.