Hang Seng Index December "Makeover": POP MART and KUAISHOU expected to be included, component stocks returning to 100?

POP MART and KUAISHOU may be joining the Hang Seng Index!

In the first three quarterly reviews of this year, the Hong Kong Hang Seng Index only replaced one constituent stock and did not expand. However, in the last quarterly review of this year, analysts believe that the leading live-streaming company Kuaishou Technology, biotechnology company Kejia Pharmaceuticals, and toy manufacturer POP MART are expected to join the index.

Currently, the Hong Kong Hang Seng Index includes 82 stocks, and in 2021, the Hang Seng Index Company stated that the ultimate goal is to expand the number of constituent stocks to 100, hoping that the index can more evenly represent the seven major industries of the Hong Kong stock market.

However, while increasing constituent stocks helps enhance the diversity of the index, if the characteristics of the newly added stocks do not meet investors' expectations for the index, it may also disappoint investors.

Brian Freitas, founder of Periscope Analytics, stated: “Since no constituent stocks have been added this year, adjustments may be made in December.”

However, since the Hang Seng Index Company has not clearly stated which year it will achieve the goal of expanding the index to 100 stocks, some analysts believe that the pace of adjustments may be slow. Periscope analyst Freitas stated: “The process of increasing the number of constituent stocks to 100 may be delayed until 2026.”

Analysts believe that the healthcare sector is still the least represented industry in the Hang Seng Index. Quiddity analyst Janaghan Jeyakumar stated:

“Kejia Pharmaceuticals and China Resources Pharmaceutical have a high likelihood of being included, as regulatory agencies in the healthcare sector have launched some programs to support innovative drug manufacturers.”

Consumer staples, discretionary consumer goods, real estate, and construction may gain higher weight in the Hang Seng Index. IG Markets analyst Hebe Chen stated:

“Especially in discretionary consumer goods, the industry has finally seen a revival after a long stagnation at the end of September.”

Sonija Li, an analyst at MIB Securities Hong Kong Limited, listed POP MART as a potential candidate stock, along with KUAISHOU and XPeng. Thanks to the huge enthusiasm of Chinese consumers for "trendy toys," POP MART's stock has risen over 300% since its listing in Hong Kong this year.