The quarterly adjustment results for the Hang Seng Indexes were announced on August 21. Adjustments not involving Stock Connect eligibility took effect after the market close on September 4, while those involving Stock Connect took effect on September 11. This reset is expected to trigger over US$7.2 billion in two-way passive fund flows, with the technology hardware and semiconductor sectors expected to receive approximately US$870 million in net passive buying; the banking sector is expected to face approximately US$800 million in net outflows. Historical data shows that newly added constituent stocks in the Hang Seng Index and the Technology Index typically have relative excess returns before the effective date:
1. The Hang Seng Index added Hua Hong Semiconductor and Weichai Power, increasing the number of constituent stocks to 95; the Hang Seng Technology Index replaced Tongcheng Travel with Tianshu Zhixin; the H-share Index (HSCEI) remained unchanged; the Hang Seng Composite Index (HSCI) added 61 stocks and removed 15.
Valuation and Fund Flow Scale: After the adjustment, the Hang Seng Index market capitalization is expected to increase by 1.6%, while the Technology Index will decrease by 2.6%. The forward 12-month P/E ratio of the Hang Seng Index rose slightly from 11.1 times to 11.2 times.
2. Sector Fund Flows: Technology hardware and semiconductors are expected to see the largest passive buying (net inflow of approximately US$870 million), while software services and internet/media sectors also expect net inflows of US$190 million to US$230 million. The banking sector faces the largest fund outflow (net outflow of approximately US$800 million), while utilities and retail sectors will see outflows of US$100 million to US$140 million.
3. Individual Stock Flows and Performance: Ctrip, Lenovo, Hua Hong Semiconductor, Weichai Power, Tencent, and SMIC are leading in net buying (US$160 million to US$470 million); HSBC Holdings, Meituan, Tongcheng Travel, and China Construction Bank are facing the largest net selling (US$100 million to US$520 million).
