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Hong Kong’s Hang Seng benchmark paves way for Alibaba to be included

The Hang Seng Index has made changes to the rules to allow it to integrate the Chinese internet giants Alibaba, Xiaomi and Meituan Dianping, a move expected to shake the 50-year-old index composition.

Financial services institutions and conglomerates such as HSBC and CK Hutchison dominate the benchmark in the Asian financial hub.

“There is a perception that local indices such as Hang Seng do not necessarily reflect the opportunity set available out there,” said Franklin Templeton’s Chinese equity portfolio manager Michael Lai.

“Inclusion would be a reflection of how the Chinese markets, companies have evolved.”

The index provider said in a statement, companies from Greater China with a secondary listing in Hong Kong and those with two classes of shares with different voting rights will be included in the index beginning in August, with a weighting cap of 5 per cent.

Hong Kong’s stock exchange began allowing companies to list with two classes of shares in 2018 and later streamlined secondary listings by Chinese companies listed overseas, allowing the three tech giants to enter into the market.

Alibaba, Xiaomi and Meituan – the only Hong Kong companies with dual-class or equivalent structures are typically ranked in the top five stocks traded there by value each month.

Adding the three companies could drive US$ 3.7 billion in passive fund flows into their shares, analysts at Morgan Stanley said in a note before the announcement. The tech trio is also eligible for entry to the Hang Seng China Enterprises Index.

Alibaba has a different voting structure to that of the other two. A small group of current and former senior executives can elect a majority of its board. But the Hang Seng Indexes Company also treats it as a dual-class shares firm.

It is also the only one of the three in New York with another listing elsewhere.

Other companies with dual-class shares, such as the U.S.-listed internet company Baidu and JD.Com, are planning secondary listings in Hong Kong this year, Reuters reported.

The Hang Seng is tracked globally by US$20 billion of exchange-listed items, and local retirement plans worth $8 billion, the index provider said in a January consultation report.

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