To The Moon

Investors in Hong Kong heard of the "quarterly review" of Hang Seng Index, for its quarterly reconstitution and rebalancing.

On August 19th,$HSI(HSI)$ $HSTECH(HSTECH)$ $HSCEI(HSCEI)$ has published the Adjustment results for the first half of 2022, as follows:

1. Hang Seng Index: This adjustment for $Baidu(BIDU)$,$CHINA SHENHUA(01088)$,$Chow Tai Fook Jewellery(01929)$,$HANSOH PHARMA(03692)$ weights 0.65%, 0.65%, 0.26% and 0.15% respectively; the number of constituents after adjustment has further increased from 69 to 73. Of course, according to the consultation results released by Hang Seng Index Company in March 2021, the number of constituent stocks of Hang Seng Index will increase to 80 before mid-2022, and finally fixed at 100, and the progress is still relatively lagged.
2. Hang Seng China Enterprises Index: including $SENSETIME-W(00020)$ as a weight of0.41%, and the exclusion is at the same time$CPIC(02601)$ as a weight of 0.63%.
3. Hang Seng TECH Index: This time, it was not included and excluded, and the number remained unchanged at 30.

Therefore, the main changes are in Hang Seng Index and Hang Seng China Enterprises Index.

What should we pay attention to? First of all, The inflow and outflow of funds of ETFs

Most of the ETFs tracking indexes are passive investments. As long as the indexes change, they need to follow unconditionally. At present, the ETF funds tracking the Hang Seng Index are about$20.71 billion The size of ETFs tracking the state-owned enterprise index is about$5.67 billion.

If we take the average turnover in 180 days, which Baidu, China Shenhua, Chow Tai Fook and Hansen Pharmaceutical are 560 million, 500 million, 65 million and 52 million respectively. Therefore, according to the funds brought by their new weights,Passive inflows to these stocks needs 1.2 days, 2.1 days, 7.1 days and 3.9 days, respectively.

The above index adjustment results will come into effect on Monday, September 5, 2022. In order to minimize the tracking error, passive funds will choose to adjust their positions on the trading day before the effective date, that is , September 2nd.It is expected that when the time comes, these stocks will be much larger than usual, especially in late trading.

In addition, the weights of some constituent stocks will also change, such as:

1. Hang Seng Index:$HSBC HOLDINGS(00005)$Because it exceeds the upper limit of 8%, it needs to be reset to 8% (currently 8.68%), and passive capital outflow according to 180-day average turnover, It needs to flow out for about 1.2 days. By the same token,$CKH Holdings(00001)$,$ZHONGHUA GAS(08246)$And$MTR CORPORATION(00066)$Also due to the downward adjustment of weight, it is necessary toOutflow for 0.5 days.
2. State-owned enterprise index: Since there are relatively few ETFs tracking the state-owned enterprise index, the maximum time required for passive capital inflow is the newly transferred Shang Tang, which is expected to bring in 23.25 million US dollars,The inflow time is 0.5 days; At the same time,$CPIC(02601)$Due to the transfer out, the existing weight of 0.63% will encounter capital outflow, which is expected to affect about 0.6 days, but the price of AH shares is relatively stable.
3. Hang Seng Technology:The circulation coefficient of Shang Tang was adjusted, so the weight included in the index increased from 0.15% to 1.76%,It is expected to bring a passive capital inflow of 170 million US dollarsAccording to the average turnover of 180 daysThe required time is about 3.9 days. In addition, the weights of Xiaomi and JD.COM will be reset from 8.35% and 8.11% to 8%, which is expected to bring passive capital outflows of US $11.92 million and US $37.93 million respectively, with an impact time of 0.3 days.

To sum up, SENSETIME-W, Chow Tai Fook, Hansen Pharmaceutical and Baidu will get some active funds to increase their positions in the next few trading days, and may usher in the peak of arbitrage trading on September 2.