China Telecom added to Hang Seng Index, effective Sept 8

China Telecom added to Hang Seng Index, effective Sept 8

China Telecom (00728.HK) will be included in the Hang Seng Index (800000.HK) starting September 8, following the latest quarterly review results announced by the Hang Seng Index Company. The addition of China Telecom, along with JD Logistics (02618.HK) and Pop Mart (09992.HK), will increase the index's constituent stocks from 85 to 88 [1].

This index adjustment is expected to attract passive fund inflows, leading to significant increases in trading volume and price volatility for the relevant stocks. The rebalancing window following the implementation will likely see increased capital favor for the newly included stocks. Historically, such adjustments have influenced the liquidity and price performance of individual stocks in the short term [1].

The Hang Seng Index is an important barometer of the Hong Kong capital market, and its adjustments directly impact the rebalancing behavior of significant amounts of passive funds tracking related indices, such as ETFs and index funds. The current sizes of ETFs tracking the Hang Seng Index, the State-Owned Enterprises Index, and the Hang Seng Technology Index are approximately $31.24 billion, $7.03 billion, and $30.88 billion, respectively [1].

From a medium to long-term perspective, the Hong Kong stock market is widely regarded as a "global value trap," offering low valuations and a good margin of safety. The continuous inflows of southbound funds confirm the recognition of the investment value of Hong Kong stocks by mainland investors. This index adjustment may further boost market confidence in related sectors and individual stocks [1].

Goldman Sachs estimates that the market capitalization of the Hang Seng Index, State-Owned Enterprises Index, and Hang Seng Technology Index will rise to approximately $2.09 trillion, $1.42 trillion, and $480 billion, respectively, reflecting increases of 1.6%, 1.1%, and 9% compared to before the changes [1]. The projected price-to-earnings ratios are expected to rise from 11.3, 10.7, and 17.6 times to 11.4, 10.8, and 18 times, respectively, with earnings growth forecasts adjusted from 5.4%, 6.3%, and 17.5% to 5.7%, 6.6%, and 16.8% [1].

References:
[1] https://news.futunn.com/en/post/61708095/the-results-of-the-hang-seng-index-s-quarterly-review