• Quarterly review may add tech, consumer, and health stocks

• Index compiler aiming to boost HSI member count to 100 from 82

(Bloomberg) - After barely changing components at all so far this year, Hong Kong’s benchmark stock gauge may be set for more of a shakeup this time around.

The three reviews to date in 2024 have produced just one substitution and no expansions despite compiler Hang Seng Indexes Co.’s eventual goal to expand to 100 constituents. Expectations are higher for moves this time, with live-streaming leader Kuaishou Technology, biotech firm Akeso Inc. and toymaker Pop Mart International Group seen by analysts as possible additions to the gauge. 

“With no increase in the number of index constituents this calendar year, there could be inclusions in December,” Brian Freitas, founder of Periscope Analytics, wrote on independent research provider Smartkarma. 

Hang Seng Indexes set the goal in 2021 of having 100 components in the Hong Kong benchmark, though it didn’t specify a target date for that number. It currently has 82 members. Having more members boosts the diversification of the index, but may also turn off investors if the new stocks’ characteristics aren’t in line with what they’re seeking from the gauge. 

The index provider also said in 2021 that it wanted a more balanced representation of seven industry groups in Hong Kong’s stock market, which would be reviewed at least every two years.

Health care continues to be the most underrepresented industry group, said Janaghan Jeyakumar, an analyst at Quiddity who writes on Smartkarma. 

“Akeso and China Resources Pharmaceutical Group have a good possibility of addition because the health-care industry regulator has rolled out some supportive plans for innovative drug manufacturers,” he said.

Consumer staples and discretionary, as well as property and construction, might get higher weightings in the gauge, said Hebe Chen, an analyst at IG Markets Ltd. 

“Particularly consumer discretionary, which has faced prolonged stagnation, is finally embracing new life following a substantial boost from China’s robust stimulus measures introduced in late September,” she said.

Sonija Li, an analyst at MIB Securities Hong Kong Ltd., picks Pop Mart as a potential candidate, on top of Kuaishou Technology and electric-vehicle maker XPeng Inc. Pop Mart’s ascent has been fueled by Chinese consumers’ robust appetite for so-called pop toys — and its Hong Kong-listed stock has surged more than 280% this year.

Still, it isn’t clear whether Hang Seng Indexes will ramp up the number of changes in this review. The firm hasn’t shown a particular rush to get to its goal in the three years since it set the target.

“The process of getting to 100 index constituents could drag into 2026,” Periscope’s Freitas said.