Hong Kong Stock Exchange Sees Future in Chinese Technology

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Hang Seng Indexes, the city’s leading index compiler, announced on Monday the creation of a new benchmark that will track the 30 largest tech companies trading in Hong Kong. The Hang Seng TECH Index is expected to debut next week.

Hong Kong’s role as a global financial center has been shaken in recent months by tensions between the United States and China, which have escalated as Beijing prepares to tighten its grip on the city. A sweeping national security law that China imposed on the city has been criticized by some for undermining the political and legal freedoms that have existed since Britain surrendered the former colony to China in 1997.

The Technology Index, however, suggests that Hong Kong is looking to strengthen its position as the geopolitical fallout spreads.

The city has recently become increasingly attractive to Chinese companies who fear for their business prospects in the United States. Alibaba (BABA), NetEase (DETECTOR) and JD.com (JD) – including all exchanges in New York – have in recent months held secondary registrations in Hong Kong. And Ant Group, the company behind Chinese mobile payment firm Alipay, said Monday it has selected Hong Kong and Shanghai for its initial public offering.

Some of China’s biggest technology champions, including Alibaba, Tencent (TCEHY), Meituan Dianping and Xiaomi, will all be included in the new technology index. They will have a combined weighting of over 33%.

“The technology sector has become increasingly important to the Hong Kong market,” said Daniel Wong, director and head of research and analysis at HSI. “We hope this move will help attract more tech companies to Hong Kong. ”

The rise of the Chinese technology sector in Hong Kong is also unlikely to stop with the creation of this new index. From next month, other tech stocks could also start appearing on the Index Hang Seng (HSI), the city’s main reference. The index compiler changed the rules in May to allow companies that have chosen the city for their secondary listing to appear in the index. Market support for the change was “overwhelming,” the Hang Seng indices said at the time.

“The Hong Kong stock market is becoming increasingly tech-loaded, and that’s good for its status as an international financial center,” said Kenny Tang, co-founder and managing director of Hong Kong-based Royston Securities.

The 51-year-old Hang Seng Index is dominated by financial conglomerates and local real estate developers, including HSBC (HBCYF), CK Hutchison (CKHUY) and Sun Hung Kai Properties (SUHJF). Only three of its 50 components are technology companies.

But the influx of Chinese tech companies in recent months has dominated the exchange. Tencent, Alibaba and Meituan, for example, were the city’s most traded stocks last month, accounting for more than 20% of total revenue. Only Tencent is currently listed on the city’s benchmark index.

“The arrival of Chinese tech companies in Hong Kong will fundamentally transform the city’s stock market,” said Tang.

Other analysts have pointed out that Hong Kong’s role as a global business center has evolved as China takes greater control of the semi-autonomous region. Brock Silvers, chief investment officer of Adamas Asset Management, told CNN Business last week that the city could find “new relevance” as China’s financial center.

Investors apparently love the new direction. Alibaba’s stock has jumped more than 35% since it went public in Hong Kong last November. JD.com and NetEase, meanwhile, are up 7% and 15%, respectively, since their introduction last month.

More companies may be considering listings in Hong Kong. More than 30 Chinese companies listed in the United States meet the requirements for a secondary listing in Hong Kong, including Pinduoduo and Baidu, according to data provider Refinitiv.

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