To see how China’s influence has grown since the British handover of Hong Kong, look at the Hang Seng Index, which debuted in 1969 and is the city’s main equity benchmark, tracking the largest, most liquid companies.
The Hang Seng has become integral to Hong Kong, and its transformation over the decades reflects how this financial hub has evolved. At the time of the handover in 1997, when the Asian financial crisis also loomed, mainland firms barely featured on the index. But as China gained more clout worldwide, its companies began to dominate the market, squeezing out some local stalwarts: fewer than half the stocks listed on the Hang Seng 20 years ago remain there now.
In this analysis, each company was assigned a country of risk. The inclusion of H shares—mainland-incorporated companies listed in Hong Kong—that had been trading in the city since the early 1990s helped boost the number of companies on the index to 50 from 33. Mainland companies, based on country of risk, now account for 56 percent of the index by weight.
While U.K.-based HSBC Holdings Plc remains a significant player, it no longer dominates. Tencent Holdings Ltd. has become the big dog in town, muscling in with other Chinese firms.
“The history of the Hang Seng Index is the history of the Hong Kong stock market,” the index provider’s general manager Vincent Kwan said in an interview. “The development of the Hong Kong market as a main venue for fund flows going into and out of China, this reflects the nature of the Hong Kong economy,” he said.
Here’s a closer look at how the Hang Seng’s various industry groups have evolved:
In the past 10 years, Hang Seng Bank Ltd., HSBC Holdings Plc and Bank of East Asia Ltd. were joined by mainland giants including Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., boosting the weighting of China financials to 24 percent. The industry has consistently had the largest weighting on the index, peaking at 51 percent in 2009.