Swire Pacific risks losing Hang Seng Index membership after 50 years

[HONG KONG] Five decades ago, Swire Pacific was a founding member of Hong Kong's benchmark stock index. Now the family-run company risks losing its membership as Chinese technology firms increase their sway in the city's equity market.

Swire Pacific's shares have taken a hammering as last year's protests and the coranavirus pandemic hurt both its airline business as well as retail and real estate operations. The stock has lost 43 per cent in 2020, the biggest decline among the Hang Seng Index's (HSI) 50 constituents, reducing its market value to HK$58 billion (S$10.26 billion). That's made it the least valuable member on the gauge.

Market capitalisation and turnover are among factors the compiler of the Hang Seng Index considers when reviewing membership. The results of the next review will be announced after the market closes on Friday. About US$30 billion in pension fund assets and exchange-traded funds track the index.

"Swire Pacific is one of the stocks that are likely to be excluded from the HSI," said Kenny Wen, strategist with Everbright Sun Hung Kai. "Even if the property market outlook turns stable, we don't see any signs of recovery for its aviation and marine businesses in the near term."

The company declined to comment to Bloomberg News. Swire Pacific slumped to a first-half net loss of HK$7.74 billion, mainly due to the impact of the pandemic on Cathay Pacific Airways and significant impairment charges, it said in an earnings statement released during Thursday's midday trading break.

Adding pressure is the flood of Chinese technology firms listing in Hong Kong. Three such companies - Alibaba Group Holding, Meituan Dianping and Xiaomi - will be eligible to join the Hang Seng Index after its compiler allowed firms carrying unequal voting rights and dual-class shares to join the benchmark. The move is seen as a crucial update for a gauge overstuffed with old economy banks and insurers.

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HSBC Holdings, another British firm that was a founding member of the Hang Seng Index, is the second-worst performer on the gauge this year with a 42 per cent loss. The bank faced criticism from Chinese state media over its dealings with Huawei Technologies as well as from the Trump administration for its public support of Hong Kong's national security law. The lender currently has the third-largest weighting on the gauge.

Along with Swire Pacific, other firms that face the risk of losing membership are Sino Land and CK Infrastructure Holdings, due to their relatively low free-float-adjusted market cap and small trading volume, according to CGS-CIMB analysts.

BLOOMBERG