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Hang Seng announced that it is pulling beleaguered Chinese property developer Evergrande from one of its indexes, while adding some new companies onboard.
The Hang Seng Index announced that effective from December 6th, it is removing embattled Chinese real estate developer Evergrande from its China Enterprise index. However, the benchmark index provider did not reveal why it decided to remove Evergrande from one of its indexes.
In addition, Hang Seng also announced that it would include NetEase and JD.com in its main benchmark index. According to Hang Seng, this development will also take effect on December 6th. Upon the announcement, shares of both companies jumped by 3% and 2% respectively on Monday morning.
Hang Seng, a free float-adjusted market capitalization-weighted stock market index, made all announcements during its regular quarterly review. Furthermore, its China Enterprise index is set up to reflect the performances of mainland Chinese companies listed in Hong Kong. These include the top 50 eligible stocks as reflected by a measure of their market value.
Evergrande Had Faced Severe Debt Crisis Prior to Hang Seng Index Removal
Evergrande has been struggling under a pile of debt for a while now, and even warned in September that it may default on several key loans. Even though the real estate company managed to generate funds to service some loans, its position is far from secure. As a matter of fact, S&P Global Ratings stated last week that Evergrande could still default. Furthermore, the real estate company’s shares have fallen by more than 80% year to date – and 1.44% on Monday morning.
Hang Seng says Innovent Biologics, a biopharmaceutical firm, will take over Evergrande’s slot on the Chinese Enterprise index. Apart from NetEase and JD.com, other fresh entrants are China Resources Beer, a China Resources Holdings subsidiary, and ENN Energy Holdings, a subsidiary of ENN Group. The group is currently one of the biggest private energy groups in China.
These developments bump up the number of stocks under the main index from 60 to 64. Furthermore, Hang Seng also wants to add more securities to further reflect the companies listed in Hong Kong.
S&P Touches on Chinese Strained Tech Conditions
According to S&P Global Ratings in a Monday statement, the business model of JD.com is highly adaptable to China’s strained conditions. The note from the American credit rating agency read:
“The online retailer is outperforming its peers in China during a resurgence of COVID cases in the country and faltering consumer sentiment amid a housing downturn. JD.com has also been investing heavily for years now in its logistics and supply chain infrastructure. This has given the entity better control over supply chains while its competitors were hit with outages.”
S&P Global Ratings also indicated that JD’s revenue is likely to surge by over 18% per annum within the next 18 to 24 months.
The Chinese government earlier instituted a crackdown on several of its biggest tech corporations, accusing them of unfair business practices. Some of the affected firms included Alibaba (NYSE: BABA), Tencent Holdings Limited (HKG: 0700), JD.com, Huawei Technologies Co Ltd and China Mobile.