An index that tracks shares of mainland Chinese companies on the Hong Kong stock exchange will admit a pharmaceutical stock and a utility, index compiler Hang Seng Indexes said on Friday. The companies replace a railway company and a building materials producer, partly reflecting the changing profile of China's economy.
Sino Biopharmaceutical and China Resources Gas Group will replace the H shares of China Railway Group and China National Building Material on the Hang Seng China Enterprises Index (HSCEI) from December 9. Sino Biopharmaceutical will have a weighting of 1.44 per cent on the index, while China Resources Gas will have a weighting of 1.33 per cent.
Sino Biopharmaceutical's addition reflects an emphasis in Beijing on developing the country's biotechnology sector. It was one of the 10 key sectors earmarked for development under its "Made in China 2025" industrial strategy. Equally importantly, this pushed Hong Kong to set itself the target of attracting more initial public offerings by biotechnology companies when it introduced its largest listings reforms in three decades last year.
Moreover, railway and construction material stocks are no longer the "darlings of investors", Louis Tse Ming-kwong, managing director of VC Asset Management, said. "In contrast, medical and energy stocks have taken centre stage in China's economic development in recent years," he added.
The inclusion will also please Eric Tse, the company's largest shareholder. The 24-year-old became a billionaire overnight last month after his parents, the billionaire founder of Sino Biopharmaceutical and his wife, transferred a fifth of the company's share capital " about US$3.8 billion " to him as a gift.
The announcement by index compiler Hang Seng Indexes is a big boost to the company, as many passive funds that track the HSCEI are likely to pick up any shares that are added as constituent stocks. Shares in the company, which produces western as well as Chinese medicines, closed 2.48 per cent lower on Friday at HK$11.8, before the index compiler's announcement.
In January, Hang Seng Indexes announced it would increase the number of red chips " shares of mainland Chinese companies incorporated outside mainland China and listed in Hong Kong " and privately held mainland Chinese enterprises on the HSCEI, while cutting down on the number of H shares of mainland Chinese state-owned companies.
According to a formula used by the index compiler previously, red chips and privately held companies made up 10 constituents on the index, while H shares accounted for 40 constituents. After several rounds of addition, the number of red chips and privately held mainland Chinese enterprises will increase to 22 on December 9, while H shares will account for 28 constituents.
The index compiler made no changes to the 50 constituent stocks of the benchmark Hang Seng Index as part of a review held every three months. No changes were made during reviews in May and August as well.
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