This article is a reprinted article. The opinions mentioned only represent personal opinions, and the subject matter involved is not recommended. Therefore, you should buy and sell it at your own risk.
Author: Jiro Fund
Source: Snowball
Recently, I sorted out the changes of important heavyweights in the Hang Seng Index since 2000, which is quite interesting. Maybe I can find some investment opportunities from it. In the past 22 years, BLACKPINK, a heavyweight of all kinds, appeared, and the imperial grandson was a beggar, each with his own role. Because I can’t find out the changes of the heavyweights in the Hang Seng Index, I specially read the annual reports of TraHK since 2000 and sorted out the data based on the shareholding ratio disclosed in its annual report. TraHK is a fund that follows the Hang Seng Index, so this deviation will be relatively small and the degree of certainty will be relatively high.
We divide the main heavyweights into three categories: the emperor’s grandson, the aristocrat and the beggar’s gang. Grandsons mainly refer to companies that have been rooted in Hong Kong for a long time and are of great significance to the local economy and historical development of Hong Kong. The samples are Cheung Kong Industrial 00001, Sun Hung Kai Properties 00016, CLP Holdings 00002, Hong Kong Stock Exchange 00388, HSBC Holdings 0005 and Hang Seng Bank 00011.
Noble shares mainly refer to the central enterprises that have made great contributions to China’s national economy, with stable profits and dividends. The samples are Industrial and Commercial Bank of China 01398, China Construction Bank 00939, Bank of China 03988, Bank of China Hong Kong 02388, Bank of Communications 03328, China Merchants Bank 03968, China Shenhua 01088, China Petroleum 00857, China Petrochemical 00386 and China Offshore Oil 006. At the same time, it also includes some private or foreign companies, such as China Ping An 02318 and AIA 01299. Beggars’ gangs mainly refer to some so-called new economic companies. These companies basically have no stable profits or dividends, and their returns to investors are unstable. They mainly make a living by burning money and cutting leeks. The samples are Tencent Holdings 00700, Alibaba 09988, Meituan Takeaway 03690 and Xiaomi Group 01810.
Since 2000, we have found that the changes in the category of heavyweights can be divided into four stages.
The first stage is the emperor and grandson (2000-2006). This stage is basically the world of the emperor and grandson, and the nobility has emerged temporarily. HSBC Holdings has maintained a weight of around 20-30% for a long time, with a group of younger brothers, such as Hang Seng Bank, dominating the pricing power of Hang Seng Index for a long time. At this time, the aristocrat made an only child, China, whose weight was not small, and it was always between 10% and 20%, with fluctuations. In this period, the Hang Seng Index can be said to be controlled by HSBC Holdings, with China Mobile as an accomplice, forming a combination of two swords. The two heavyweights joined hands to lead the Hang Seng Index out of the gloom after the financial crisis in 1997 and the bursting of the dotcom bubble in 2000, and regain its upward trend.
The second stage is the rise of nobility (2007-2012). Since central enterprises went public in succession from 2002 to 2008, the number of state-owned enterprises in the Hong Kong market increased, and these state-owned enterprises are core assets of China with high profits and dividends, so the Hang Seng Index was incorporated into a number of companies in 2007. PetroChina, Sinopec, CNOOC, China Construction Bank, ICBC, BOC, Shenhua, Bank of Communications, China Life Insurance and Ping An were included in the Hang Seng Index in 2006 and 2007. To this end, in 2007, the eldest brother of the Huangsun family, HSBC Holdings, was forced to reduce its weight by nearly half to give way to the nobles of central enterprises. Until the end of 2019, the central enterprises on behalf of China Construction Bank have maintained a high weight of around 8%. Meanwhile, China Mobile also began to be forced to lower its weight in 2009, giving way to the brothers of other central enterprises. The central enterprise sector has contributed to the stock price jumping up and down in the post-crisis era in 2008 and 2009.
The third stage is internal and external collusion and the rise of beggars’ gangs (from 2013 to 2019). At this time, Tencent Holdings, the leader of the Beggars’ Gang, was born. In 2013, its weight was suddenly doubled to 7.37%, and in the following years, its weight rose all the way to 10.6% in 2019, defeating Huang Sun and nobles in one fell swoop and becoming the largest heavyweight in the Hang Seng Index. On the other hand, AIA, the American imperialists, also gained weight all the way during this period. In contrast, the aristocratic groups were eclipsed, and central enterprises such as China Mobile were downgraded. The biggest victim was China Mobile. In 2019, under the impact of the delisting of the US imperialists, the stock price plummeted, and the weight also plummeted. With the cooperation of AIA, Tencent, the leader of the beggar gang, took advantage of the opportunity of Hong Kong Stock Connect to push the Hang Seng Index to rise steadily during this period (although it experienced a stock market crash in the middle).
The fourth stage is to worship foreign things and flatter foreigners, and to help beggars all over the world (2020-present). In 2020, Tencent Holdings, the leader of beggars’ gangs, led a group of beggars’ gangs to fully occupy the heavyweights of the Hang Seng Index. Except Tencent’s 9.51% weight, Ali, Meituan and Xiaomi exceeded 4% weight when they started, and the total weight of the four beggars has exceeded 24%. We should know that two of these four enterprises are unprofitable for a long time, three of them do not pay dividends for a long time, and only one of them occasionally gives a few points every year. AIA Holdings of the US imperialists also gained a 10% weight in 2020. The representative of the aristocratic group, China Mobile’s weight has been reduced to about 2%, which can be ignored; Shenhua was even expelled; The weight of three barrels of oil is even less, and the aristocratic group has suffered an unprecedented blow. In 2021, with the dismissal of Bank of Communications, it reached freezing point. The weight of AIA Holdings and the four beggars is close to 40%, and even the former imperial grandson represents HSBC Holdings with only about 7%. Internal and external collusion, the beggar brothers won an all-round victory. Sadly, the Hang Seng Index, led by beggars’ gangs, has fallen miserably in the past two years.
From the above four stages, we can probably see several problems:
First, the adjustment of the heavyweights of the Hang Seng Index has developed in response to market changes. The tide of listing of central enterprises from 2002 to 2008 created the conditions for central enterprises to be included in the Hang Seng Index. In 2013, the Hong Kong Stock Connect is ready to be opened. Tencent Holdings, as an Internet enterprise with a lack of cancer stock market, will be highly sought after by mainland funds after its opening. It is expected that under the hype, it will be promoted by a large proportion. Since 2019, various non-profit new economic enterprises have been listed on Hong Kong stocks in large quantities, which has created the Hang Seng Index, the top four beggar gangs. Therefore, on the surface, every time the heavyweights change blood, it is the Hong Kong Stock Exchange that conforms to the market.
Second, is the inclusion of heavyweights really good? The answer is no! In 2007, central enterprise groups were included in the Hang Seng Index and dominated the list. The direct result was the financial crisis in 2008, and major central enterprise stocks were almost included in the index at a high level. Also in 2020, when the four beggars dominated the Hang Seng Index, it was precisely the high point of these companies’ share prices. On the contrary, China Mobile, China Shenhua, and Bank of Communications, which were downgraded again in 2020, were dismissed in 2021, but their share prices bottomed out soon and got out of the slow cattle.
Third, frequent takeover of index funds at high positions, conspiracy or conspiracy? I can’t draw a conclusion about this, but there are several details worth considering. 1) From 2002 to 2007, when central enterprises went public, many foreign investors (mainly American imperialists) were important strategic investors during or before IPO. After entering the market at a low price, they inevitably needed an opportunity to escape. Just in 2007, in line with the big bull market environment, they threw a package of central enterprises directly into the Hang Seng Index, and many of them were not low in weight, and then everyone knew. 2) In 2020, China Mobile suffered a blow from the U.S. imperialists. In that year, it directly reduced its weight by half from more than 4%, which was not too high, and thus severely suppressed its share price. 3) In 2020-2021, when the share price of Internet companies rose sharply, the weight of the four beggars was greatly increased. The major shareholder behind the four beggars is precisely foreign capital, and everyone has seen the following things. Index funds have repeatedly taken over high positions. Is it a conspiracy or an open plan?
From the above questions, we may get some investment suggestions or judge some future trends.
1) Companies that are newly included in the index or have a high proportion of weight will be doomed sooner or later unless they have sustainable development and long-term reasonable dividend returns (such as HSBC Holdings).
2) A company that has been expelled or drastically reduced its weight, if its profits are stable and its dividends are long-term and reasonable, may be a time to enter the market for a long time. Such as China Shenhua and China Mobile in 2020.
3) At present, the aristocratic central enterprises have been suppressed for ten years, with little weight left, but these enterprises have stable profits, large net profits and generous dividends, and may be reborn in the next 1-2 years. Both share price and weight may rise sharply; Beggars’ gangs, due to the lack of sustained profits and dividends, have inflated stock prices and great power, and their stock prices and weights will face tremendous downward pressure in the future.
Therefore, happiness depends on misfortune, and misfortune depends on happiness. It is not a good thing to dominate the list, and it is not a bad thing to be fired. Everything in the world goes on and on. Next year, the environment may change.
Every squat is for jumping higher next time! When the market is in a downturn, Xiaoxue will accompany you to charge.
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