A MIRROR to Hong Kong’s fortunes since its 1969 launch, the Hang Seng Index has also become a reflection of the Chinese mainland’s economic rise.

The benchmark stock gauge is up by around 16,700 percent since 1969, according to data compiled. In that time, its constituents have evolved from local firms to an embrace of Chinese mainland names that now account for more than half of its market value.

“The Hang Seng Index has become a proxy of the Chinese mainland’s economy,” said Jackson Wong, asset management director at Amber Hill Capital. “It’s no longer a pure reflection of Hong Kong.”

In August 1992, what’s now known as CITIC Ltd. became the first mainland company to join the gauge. Today, the majority of companies on the index get their revenue from the mainland.

The gauge’s correlation with the Shanghai Composite Index has been hovering near a record high. Between 2001 and 2019, two Hang Seng heavyweights, Tencent Holdings Ltd. and China Mobile Ltd., were the biggest contributors to gains.

The index will need to continue adapting, said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Asset Management. A wider embrace of mainland mid-cap stocks is needed to stave off competition from rivals such as MSCI Inc. and FTSE Russell, he added.

“I’m still bullish on China’s large-caps, but this segment is more mature,” said Kwong. “I’m more positive on China mid-caps, the opportunities for growth are there. If the Hang Seng Index can be more flexible, it will do well.”

Hang Seng Indexes Co. says it is planning a consultation in the first quarter to review the presence of financial stocks, which currently account for about half the weight on the gauge. That compares with an average of 19 percent of its peers in Europe, the United States, Japan and the mainland, according to Bloomberg Intelligence.

It will also discuss including firms that have shares with different voting rights, held by technology companies like Alibaba Group Holding Ltd. — one of the reasons Hong Kong lost out to New York in 2014 for the firm’s initial public offering.

Alibaba’s US$11 billion Hong Kong debut could provide a “shake-up of the Hang Seng Index,” if it becomes a member, said Bloomberg Intelligence analyst Steven Lam. AIA Group Ltd. and HSBC Holdings are likely to see their weightings reduced in the event, he said. (SD-Agencies)