After the close of trading on August 16, 2024, Hang Seng Index Company will announce the semi annual review results of the Hang Seng Index series, which includes major flagship indices of Hong Kong stocks such as Hang Seng, State owned Enterprises, and Hang Seng Technology, as well as the Hang Seng Composite Index closely related to the investment scope of the Hong Kong Stock Connect.
Due to the large scale of passive funds tracking these flagship indices, potential changes in constituent stocks and corresponding fund flows deserve special attention. According to Bloomberg and Wind's statistics, the ETF sizes tracking the Hang Seng Index, State Owned Enterprises, and Hang Seng Technology Index are approximately $25.76 billion, $4.95 billion, and $15.14 billion, respectively.
China International Capital Corporation (CICC) expects 25 companies to be included in the Hong Kong Stock Connect, while 33 may be removed
This adjustment also coincides with the semi annual index review of the Hang Seng Composite Index. As the Hang Seng Composite Index is a sample space for investment in the Hong Kong Stock Connect, its changes will directly affect the investable scope of the Hong Kong Stock Connect.
According to CICC's estimation, a total of 25 stocks may meet the criteria for inclusion in the Hong Kong Stock Connect, while 33 stocks may be removed from the Hong Kong Stock Connect due to market value less than HKD 4 billion, market coverage ranking below 96%, or suspension of trading, which do not meet the conditions of the Hang Seng Composite Index.
It is worth noting that according to Alibaba's financial report released on May 14th this year, the company is expected to complete the transition from secondary listing to dual primary listing by the end of August this year.
Considering that the company has already met other requirements for inclusion in the Hong Kong Stock Connect, such as being listed for at least 6 months and 20 trading days (listed on November 26, 2019); As a company with the same stock but different rights, the daily average market value is not less than HKD 20 billion and the transaction volume is not less than HKD 6 billion 183 days before the inspection date. Therefore, if the company successfully completes the dual major listing conversion by the end of August 2024, it is expected to catch up with the Hong Kong Stock Connect inspection day on September 5th and be included in the adjustment around September 9th in this round.
However, China International Capital Corporation (CICC) stated that if Alibaba is unable to complete the transition from a secondary listing to a dual primary listing within the time frame, the company will face the risk of not being included in the relevant index or investment scope.
Schedule: The closing announcement will be made on August 16th and will be executed on September 9th; The targets of the Hong Kong Stock Connect have been adjusted accordingly
In terms of timing, the Hang Seng Index Company will announce the official results of the Hang Seng Index series adjustment after the close of trading on August 16, 2024, and will officially implement it on September 9. After the index adjustment takes effect on September 9th, the Shanghai and Shenzhen stock exchanges will adjust the range of investable targets of the Shanghai Hong Kong Stock Connect accordingly based on this (the specific time depends on the announcement of the exchange).
During this period, similar to the MSCI index adjustment, some active funds still do not rule out taking certain arbitrage operations based on the announced adjustment results. However, passive funds will choose to adjust their positions on the trading day before the effective date (i.e. September 6th) to minimize tracking errors. At that time, there may be significantly higher than usual "abnormal volume" trading of related stocks, especially in the late trading session.