20181123-兴业金融证券-HSI_3Q_Rebalance_Preview__Another_Consumer_Stock__12页_681kb

Hong Kong Strategy Summary: 3Q18 HSI Review

Core Content

The Hang Seng Indexes Co is set to announce the results of the 3Q18 review of the Hang Seng Family of Indexes on 9 November 2018. This review is expected to impact the composition of the Hang Seng Index (HSI), with potential inclusion and removal candidates identified. The HSI is known to have significant over-representation in the financials sector and under-representation in the consumer goods, IT, and industrials sectors.

Main Points

• Potential Inclusions:

  • Anta Sports Products (2020 HK): A leading domestic sportswear brand in China, with strong growth in retail sales and a mid-to-high end positioning in the market. It is considered the top candidate for inclusion due to its substantial under-representation in the consumer goods sector and relatively high trading turnover.
  • China Gas (384 HK): A utilities company with a strong net profit growth and potential for further earnings growth through its stake in Shandong Petroleum & Natural Gas. It is considered a second potential inclusion due to its sectoral under-representation and trading performance.
  • Other potential inclusion candidates from the consumer goods sector include China Resources Beer, Techtronic Industries, Sun Art Retail, and Tingyi, but they are less likely to be included due to previous removals or lower performance metrics.

• Potential Removals:

  • Sino Land (83 HK): A property company with the lowest daily trading value in nearly all the past eight quarters. It is considered the top candidate for removal due to its low liquidity and low turnover.
  • China Resources Power (836 HK): A utilities company with the second-lowest market cap and relatively low trading turnover. It could be removed if China Gas is included, as it may not meet the sectoral balance criteria.
  • Other potential removal candidates include China Shenhua, which has high turnover and is likely to remain, and other companies with low liquidity or market representation.

Key Information

• Sector Representation in HSI:

  • Over-represented sectors: Financials (especially banks and insurance), with the HS Finance sector being 11% above the overall market.
  • Under-represented sectors: Consumer Goods, IT, and Industrials, with the Consumer Goods sector being the most under-represented (5.8% below the overall market).

• Historical Impact of Index Changes:

  • Inclusion and removal candidates historically show significant price movements around the announcement date, with the most pronounced reactions occurring one day after the announcement.
  • Inclusion stocks typically experience a price run 5-6 days before the announcement, but this fades as the effective date (usually a month after the announcement) approaches.
  • Removal candidates often rebound after hitting lows post-announcement.

• ETF Flow Implications:

  • Passive ETFs tracking the HSI are expected to complete purchases of potential inclusion candidates in 2-3 days and sell-off of potential removal candidates in 4-9 days based on estimated free float adjusted weightings and average daily trading values.
  • ETFs with a size of HKD126.7bn are the main players, while large, actively managed funds are not included in the calculation.

• Eligibility Criteria for Inclusion:

  • Market Value (MV): A security must be among the top 90th percentile of the total MV of the Universe.
  • Turnover: A scoring system based on the top 90th percentile of the aggregate market turnover over eight quarterly sub-periods, with a maximum of 12 points. Securities must obtain at least 8 points to meet the turnover requirement.
  • Listing History: Companies must be listed for at least 24 months before becoming eligible for inclusion. Those listed for less than 24 months must meet stricter MV and turnover requirements.

Conclusion

The upcoming 3Q18 review may result in changes to the HSI, with Anta Sports Products and China Gas as the top potential inclusions and Sino Land and China Resources Power as the top potential removals. These changes are expected to have short-term trading implications, with significant price movements around the announcement and effective dates. The HSI Advisory Committee will consider sectoral representation and financial performance, with some subjective interpretation allowed in the process.