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.
The sector’s overall influence on the benchmark index has waned despite soaring property prices in Hong Kong. Real estate accounted for as much as 27 percent of the index in 1997, but dipped as low as 11 percent in 2011. The group, which includes Li Ka-Shing’s CKH Holdings Ltd., has since rebounded to about 17 percent. China real-estate companies make up 1.8 percent of the index, up from zero in 1997.
Industrial stocks have all but disappeared from the Hang Seng Index. After making up 12 percent of the gauge in 1997, this group now has a weighting of only 0.9 percent, with CITIC—a conglomerate with businesses in manufacturing, resources and energy, engineering contracting, financials and real estate—the only company remaining. In 1997, Hong Kong companies accounted for the bulk of this category.
This is dominated by mainland names, as energy giants like Sinopec and CNOOC Ltd. emerged to fuel China’s insatiable demand for commodities in the first decade of the century. The group accounts for about 6.6 percent of the index. In 1997, there were no companies in this category from either China or Hong Kong.
Mainland companies have carved a niche in the production of consumer products, led by Hengan International Group Co., which makes diapers and wipes, and Want Want China Holdings Ltd., maker of snack food and packaging materials. The industry remains a small part of the index at 2.8 percent in 2017, compared with 2.1 percent in 1997.
Two massive Chinese businesses make up this sector. Internet services company Tencent Holdings Ltd. and computer maker Lenovo Group Ltd. together account for an 11 percent weight in the gauge. Tencent is the largest stock in the Hang Seng Index with a market cap of HK$2.58 trillion ($330 billion). There were no China technology names in 1997.
Big players China Unicom Hong Kong Ltd. and China Mobile Ltd. have crowded out old-guard locals such as SmarTone Telecommunications Holdings Ltd. The sector’s weighting peaked at 26 percent in 1999 and it now stands at 7.1 percent. Telecommunications had a 9.2 percent weighting in 1997, entirely from HK Telecom Ltd., which was later renamed Cable & Wireless HKT Ltd. and then bought by PCCW Ltd.
Newspaper companies Oriental Press Group Ltd. and the former SCMP Group Ltd. dropped from the index well before the turn of the century. Television Broadcasts Ltd. held out a little longer, until 2004.
By opening up to mainland companies, Hong Kong came to terms with the reality of China’s influence, according to Chi Lo, senior economist for Greater China at BNP Paribas Investment Partners. “Instead of calling it a good thing or a bad thing, I see it as a natural evolutionary process for Hong Kong to survive,” he said in an interview.