CICC: Analysis of the impact of the adjustment of the Hang Seng and Hong Kong stock connect programs, the weight of the market value of the Hang Seng Index's new economy segment has returned to over 50%.

CICC released a research report analyzing the impact of the adjustment of the Hang Seng Index and Hong Kong Stock Connect. The team believes that, based on the consultation results released by Hang Seng Index Company in March 2021, the number of constituent stocks in the Hang Seng Index will increase to 80 by mid-2022, eventually settling at 100, which is still in the process of expanding towards this goal, but the overall progress is slower than expected. After this adjustment, the proportion of new economy market value in the Hang Seng Index will increase slightly from the current 48.9% to 50.0%, returning to above 50%. At the industry level, the proportion of information technology and industrial sectors will increase, rising from the current 14.9% and 10.0% to 15.9% and 10.9%, respectively. However, the proportions of the financial sector, utilities, and telecommunications sectors have decreased from the current 34.3% and 6.2% to 32.4% and 6.0%. The following is a summary of the research report: Key points of Hang Seng series index adjustment: The Hang Seng Index will include CMOC Group Limited, LAOPU GOLD, and Contemporary Amperex Technology; Hang Seng State-Owned Enterprises will include BEKE-W and HORIZONROBOT-W, but excluding CHINA RES BEER; Hang Seng Technology will not have any component adjustments. Calculation of fund flows: Focus on the positive impact of CMOC Group Limited, BEKE-W, HORIZONROBOT-W, and LAOPU GOLD; negative impact on HSBC HOLDINGS, etc. Adjustment of Hong Kong Stock Connect targets: We expect 44 stocks to potentially meet the inclusion criteria, while 25 may be removed. Adjustment timeline: The results of the index adjustment mentioned above will take effect on March 9 (Monday), and passive funds will choose to adjust their positions on the trading day before the effective date, which is March 6, in order to minimize tracking errors. After-hours on February 13, 2026, Hang Seng Index Company announced the semi-annual index adjustment results (the review cut-off date was December 31, 2025, usually announced within 8 weeks after the review date). This adjustment covers major Hong Kong stock indices such as Hang Seng, State-Owned Enterprises, Hang Seng Technology, as well as Hang Seng Composite Index, which directly determines the investable range of Hong Kong Stock Connect. We provide a comprehensive analysis of its impact for investors to refer to. Hang Seng series index adjustment: The Hang Seng Index will include CMOC Group Limited, LAOPU GOLD, and Contemporary Amperex Technology; Hang Seng State-Owned Enterprises will include BEKE-W and HORIZONROBOT-W; no adjustment for Hang Seng Technology. Changes in constituent stocks: CMOC Group Limited, LAOPU GOLD, and Contemporary Amperex Technology will be included in the Hang Seng Index; BEKE-W and HORIZONROBOT-W will be included in the Hang Seng State-Owned Enterprises, with no adjustment for Hang Seng Technology. 1) Hang Seng Index: This adjustment will include CMOC Group Limited (weight 0.51%), Contemporary Amperex Technology (weight 0.39%), and LAOPU GOLD (weight 0.29%); the number of constituent stocks will increase to 90 after the adjustment. 2) Hang Seng State-Owned Enterprises: This adjustment will include BEKE-W and HORIZONROBOT-W, with inclusion weights of 0.90% and 0.88% respectively; the number of constituent stocks will remain at 50 after the adjustment. 3) Hang Seng Technology: There will be no adjustment to the constituent stocks, with the number remaining at 30. Calculation of fund flows: Focus on the positive impact of active funds on stocks such as CMOC Group Limited, BEKE-W, HORIZONROBOT-W, LAOPU GOLD; negative impact on stocks such as HSBC HOLDINGS. Based on Bloomberg data, the ETF fund size tracking the Hang Seng Index is approximately $29.45 billion, while the ETF sizes tracking State-Owned Enterprises and Hang Seng Technology indices are approximately $8.95 billion and $50.94 billion respectively. Based on the changes in constituents and weights mentioned above, and combined with the average daily trading volume of individual stocks over the past 3 months, we estimate the potential impact of passive fund changes: 1) Hang Seng Index: The stocks that will require the most time for passive fund inflows in this adjustment are CMOC Group Limited, LAOPU GOLD, and Contemporary Amperex Technology, which we estimate will bring in approximately $150 million, $85 million, and $110 million in passive fund inflows respectively, with required trading times of approximately 1.3 days, 1.0 day, and 0.7 days. Additionally, due to the changes in index weights, the potential passive fund outflows from HSBC HOLDINGS and CLP HOLDINGS could reach $500 million and $50 million respectively, with outflow times of approximately 2.5 days and 1.5 days. 2) Hang Seng State-Owned Enterprises: The stocks that will require the most time for passive fund inflows in this adjustment are BEKE-W and HORIZONROBOT-W, which we expect will bring in approximately $80.51 million and $78.72 million in fund inflows respectively, with required trading times of approximately 1.2 days and 0.5 days. Regarding fund outflows, MENGNIU DAIRY and CHINA RES BEER, with existing weights of 0.47% and 0.39%, are expected to bring outflows of approximately $42.04 million and $34.89 million respectively, with outflow times of approximately 0.95 days. 3) Hang Seng Technology: Despite no adjustments to constituent stocks, the stock that will require the most time for passive fund inflows is HORIZONROBOT-W, which we estimate will bring approximately $130 million in fund inflows, with an inflow time of approximately 0.85 days. Adjustment of Hong Kong Stock Connect targets: 44 stocks may meet the inclusion criteria, while 25 may be removed. This adjustment coincides with the semi-annual index review of the Hang Seng Composite Index (which occurs twice a year, with cut-off dates at the end of June and December), and the adjustment of the Hang Seng Composite Index will once again become a major basis for the investable range of Hong Kong Stock Connect. Based on the adjustment situation and combining with the inclusion requirements of Hong Kong Stock Connect, the potential adjustments of the Hong Kong Stock Connect targets are as follows: 44 stocks may meet the inclusion criteria for Hong Kong Stock Connect: CHUANGXIN IND, ONEROBOTICS, JIAXIN INTL RES, CTF SERVICES, INSILICO, BANK OF E ASIA, JD INDUSTRIALS, DEEPEXI TECH, LINGBAO GOLD, WASION HOLDINGS, GOFINTECH QUANT, 51WORLD, CIRRUS, BAO PHARMA-B, GUOXIA TECH, 160 HEALTH, PATEO, SOFTCARE, PEGBIO CO-B, XUNCE, ZHIDA TECH, QINGSONG HEALTH, QUANTGROUP, BRIGHT SMART, AB&B BIO-TECH-B, CONSUN PHARMA, SEYOND, NEWBORNTOWN, HUISHANG BANK, NUOBIKAN, BUTONG GROUP, HAIXI PHARMA, CF PHARMTECH, GENFLEET-B, XUANZHUBIO-B, WELLCHELL HOLD, CIDI, LEADS BIOLABS-B, JST GROUP, ABLE DIGITAL, HIPINE, CARSGEN-B, OSL GROUP, and Hashkey Holdings. Compared to the 44 stocks predicted for inclusion in the Stock Connect in mid-January, which align with 43 being included, there was 1 discrepancy due to uncertainties related to float factors and turnover rates resulting from the Hang Seng Index Company not making this information public. We will continue to optimize our predictions. It should be noted that OSL GROUP and Hashkey Holdings are newly listed virtual asset platforms. While we predicted that they would smoothly enter the Hang Seng Composite Index, there is still a possibility of variability in their inclusion in the Stock Connect due to the nature of their virtual asset platforms. Investors are advised to be aware of this possibility. In addition, the stocks included in the Hang Seng Composite Index this time (WERIDE-W, PONY-W, and MININGLAMP-W) need to meet additional requirements of being listed for at least 6 months and having a trading day count of 20 days due to their dual-class share structure, therefore they will not be included in the Stock Connect trading in March this year, and are expected to be eligible no earlier than June. Post-adjustment index characteristics: Increase in the proportion of healthcare and industrial sectors in the Hang Seng Index, but a decrease in the proportions of financial and consumer sectors. Index expansion: The number of constituent stocks in the Hang Seng Index has increased to 90 in this adjustment. According to the consultation results released by the Hang Seng Index Company in March 2021, the number of constituent stocks in the Hang Seng Index will increase to 80 by mid-2022, eventually settling at 100, and the progress is slower than expected. Industry coverage and representativeness: Market coverage for the industrial and consumer sectors has increased. Following the industry classification of the Hang Seng Index Company (7 industry classifications), after the Hang Seng Index adjustment, the coverage of the industrial sector has increased from 47.5% to 49.9%, and the coverage of the consumer sector has increased from 68.3% to 69%. Industry proportions: The proportions of the information technology and industrial sectors have increased, while the proportions of the financial and utilities and telecommunications sectors have decreased. After this adjustment, the proportion of new economy market value in the Hang Seng Index has increased slightly from the current 48.9% to 50.0%, returning to above 50%. At the industry level, the proportions of the information technology and industrial sectors have increased from the current 14.9% and 10.0% to 15.9% and 10.9%, respectively, while the proportions of the financial sector, utilities, and telecommunications sectors have decreased from the current 34.3% and 6.2% to 32.4% and 6.0%. Adjustment timeline: Effective March 9 The results of the above index adjustments will take effect on March 9 (Monday). During this period, some active funds may still conduct arbitrage operations based on the adjustment results, but passive funds will choose to adjust their positions on the trading day before the effective date, which is March 6, in order to minimize tracking errors. We expect that related stock trading volumes may be significantly higher than usual, especially towards the end of trading hours. Chart 1: After this adjustment, the coverage of the healthcare and industrial sectors in the Hang Seng Index has increased Source: Wind, CICC Research Department Chart 2: Changes in industry proportions, with information technology, consumer, and industrial sectors increasing, while financial, utilities, and telecommunications sectors decreasing Source: Wind, CICC Research Department Chart 3: ETF fund size tracking the Hang Seng Index, Hang Seng State-Owned Enterprises Index, and Hang Seng Technology Index Source: Bloomberg, Wind, CICC Research Department [1]https://www.hsi.com.hk/static/uploads/contents/zh_cn/news/consultations/20210301T000000.pdf