Date
16 December 2017
CGN Power’s market cap is not so large compared with existing HSI members, so it may have to wait a while before it can become an index constituent. Photo: Bloomberg
CGN Power’s market cap is not so large compared with existing HSI members, so it may have to wait a while before it can become an index constituent. Photo: Bloomberg

Can CGN Power become an index constituent?

CGN Power (01816.HK) shares ended 19 percent higher on their first day of trading on the Hong Kong bourse on Wednesday. The Chinese nuclear power play added another 7 percent Thursday morning despite a weak broader market.

The counter was the most active among all the stocks in Hong Kong, in terms of both the transaction volume and the turnover. On Wednesday, 2.594 billion shares changed hands, involving a value of HK$8.745 billion (US$1.12 billion).

Some are betting that given the strong stock performance, the company size and unique nature of CGN’s business, the company will be added to the benchmark indexes such as Hang Seng Index (HSI) and MSCI Hong Kong or China Index within six to twelve months.

The company is the first listed pure nuclear play in Hong Kong, and is also the first pure nuclear plant operator to list anywhere in the world since British Energy Group, which subsequently delisted, went public in London in 1996, according to Dealogic. 

To qualify as a HSI blue chip, a stock has to meet numerous criteria, with market cap and turnover ranking among the important ones.

Potential constituents of the HSI also normally have a listing history of at least 24 months, which means that the CGN Power may have to wait for a while. However, there are some guidelines for handling large-cap stocks listed for less than 24 months.

If the stock has an average market cap ranking within the top 5, its minimum listing history can be shortened to only three months. In CGN Power’s case, its market cap lies at the mid range when compared to existing HSI constituents. According to the guidelines, its minimum listing time has to be around 18 to 24 months.

Another significant market benchmark, the MSCI Index, on the other hand offers a shortcut to allow for early inclusions of stocks into their indexes, which is known as the ‘fast entry’ rule.

For any stock to be given the fast pass chance to enter the MSCI Hong Kong index, its full market cap has to reach US$5.2 billion.

The most prominent example of fast entry is AIA. The group went public in Hong Kong four years ago, and it was added to MSCI Hong Kong index within a short period as the insurer saw its market capitalization swell after its trading debut.

Although MSCI indexes, when compared with the Dow Jones Industrial Average and HSI, are less quoted by the mainstream media, they are frequently tracked by investors all over the world.

It is said that institutional investors with around US$3 trillion assets globally are using MSCI indexes as some of their tracking benchmarks.

The next quarterly review of MSCI index would come at mid-February next year.

All eyes would be on whether CGN Power will make the cut. 

– Contact us at [email protected]

RC

EJ Insight writer

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