For investors in Hong Kong’s stock market, it’s a well-known fact that the benchmark Hang Seng Index does not represent the companies listed in the city.
That’s because many of them are “old economy” stocks in increasingly irrelevant sectors such as property, oil & gas and telecommunications.
Yet at the beginning of March, the Hang Seng Indexes Company (which compiles a series of key indices for the city’s stock market) announced it would be updating the Hang Seng Index to account for more members and to attribute larger weightings to large-cap tech stocks.
Well, the first signs of that process being started came at the end of last week when the Hang Seng Indexes Company announced three new constituent stocks for the Hang Seng Index.
1. Xinyi Solar
One of the world’s largest producers of solar glass panels, Xinyi Solar Holdings Limited (SEHK: 968). Like many clean energy stocks in 2020, Xinyi shares had an impressive 2020.
Xinyi Solar’s stock price increased four-fold last year and over the past five years, shares are up 340%. However, its stock is down 35% so far in 2021 as investors have sold off growth stocks in Hong Kong.
Xinyi Solar mainly offers ultra-clear photovoltaic (PV) processed glass and is also the third-largest private solar farm developer and operator in China.
In the latest full-year financial report for 2020, Xinyi Solar saw revenue of HK$12.32 billion (US$1.59 billion), which was up 35.4% year-on-year. This mainly came from sales of solar glass, which saw a robust 47.7% year-on-year growth in sales.
2. BYD
Electric vehicle and battery manufacturer BYD Co Ltd (SEHK: 1211) is the second company to be added to the benchmark Hang Seng Index.
Famously known for having Warren Buffett as one of its backers (who invested in it back in 2008), BYD has now turned into one of the world’s pre-eminent battery manufacturers for autos.
Shares soared 400% in 2020 as the company looks to cash in on the fact that China is set to the world’s largest electric vehicle (EV) market.
That’s because China accounted for just over 40% of global EV sales in 2020, with 1.3 million EVs sold. With favourable policies on EV adoption in China, BYD will look to grow its business further over the next decade and beyond.
3. Country Garden Services
Finally, there’s residential property management firm Country Garden Services Holdings Co Ltd (SEHK: 6098).
It’s the property management arm of Chinese property developer Country Garden Holdings Co Ltd (SEHK: 2007).
Country Garden Services has thrived despite a volatile property market precisely because its revenue and margins tend to be stable, with management fees paid on a regular basis for maintenance and upkeep of residential developments.
The company had a solid 2020, in which saw it saw its share price more than double, as it continues to grow its business after being spun out by its parent in the middle of 2018.
Looking to China
It’s been clear for some time that the future of the Hong Kong stock market lies in the massive growth that the Chinese market has to offer.
With the three stocks being added to the Hang Seng Index, taking the total count to 58 now, investors will see an index that is slowly starting to reflect the new reality of Hong Kong’s stock market.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares in any companies mentioned.
