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Alibaba leads Hang Seng Index tilt toward technology stocks

Finance-heavy Hong Kong benchmark also adds Xiaomi in Sept. reweighting

Hong Kong's benchmark Hang Seng index and the Hang Seng China Enterprise index will be reshuffled in September. (Source photos by Reuters and AP)

HONG KONG -- Alibaba Group Holding, Xiaomi and pharmaceutical research group WuXi Biologics (Cayman) will be added to the Hang Seng Index next month, a milestone in the Hong Kong market's growing focus on Chinese technology stocks.

Hang Seng Indexes, a unit of Hang Seng Bank, signaled Friday that a bigger shift could be in the works, announcing a six-month comprehensive review of the benchmark to ensure it appropriately represents "the fast-expanding innovation and new economy sectors."

The company said the 50-stock index could be expanded as part of the pending overhaul. But the quarterly review unveiled on Friday kept the membership count unchanged, as developer Sino Land, snack maker Want Want China and China Shenhua Energy were marked for removal.

The revamp, which will take effect Sept. 7, was set in motion by a surge in secondary listings by Chinese companies primarily traded in the U.S. and by Hong Kong Exchanges & Clearing's move in 2018 to accept companies with multiple share classes that carry different voting rights.

Alibaba, which has the largest market capitalization of any company on the Hong Kong exchange, symbolizes both shifts but its weighting on the Hang Seng will be capped for now at 5% under the index administrator's new rules for companies with different share classes.

Alibaba will thus rank sixth in weighting on the index, behind rival Tencent Holdings, insurers AIA and Ping An Insurance Group and banks HSBC Holdings and China Construction Bank.

Tencent's weighting, the index's heaviest, will slip from 11.5% to 10%. The stock is second to Alibaba in market cap in Hong Kong.

Alibaba, rival online retailer JD.com and game developer NetEase have together raised almost $20 billion in Hong Kong secondary listings since November last year. The welcome of Chinese stocks in New York is under threat from proposals by the Trump administration and Congress that would tighten financial reporting standards for foreign companies.

Chinese food delivery company Meituan Dianping, which had been seen as a likely candidate for Hang Seng's main index, is instead to be added to the Hang Seng China Enterprise Index alongside Xiaomi and Alibaba. This index is the second-most followed in Hong Kong.

WuXi, Xiaomi and Meituan also have dual share classes but have their primary listings in Hong Kong.

The rejig will drive fund flows into the newly included stocks. More than $20 billion has been invested in 23 exchange-listed products tracking the Hang Seng Index and traded on 10 global markets. Some $8 billion in retirement funds in Hong Kong also track the bench mark.

Yet Alibaba and Xiaomi will still be excluded from the Hong Kong exchange's link with counterparts in Shanghai and Shenzhen due to their dual-class structures. Trading through the link by mainland investors buying Hong Kong shares has surged in recent months.

The index revamp comes after a consultation that drew 58 responses from banks, insurers, analysts, brokerages and asset managers. More than 90% of the respondents were in favor of including dual-class shares and secondary listings, Hang Seng Index said in May.

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