Hang Seng Index September Rebalancing Could Trigger More Than US$7.2 Billion in Two-Way Passive Flows, With Inflows Into Technology and Pressure on Banks

Overview

The report assesses constituent changes, index valuation and growth characteristics, passive fund flows, historical rebalancing performance, and Stock Connect eligibility implications arising from Hang Seng Indexes Company's September 2026 quarterly review. The core conclusion is that the adjustments could generate more than US$7.2 billion in two-way passive flows, with clear divergence across industries and individual stocks.

Core views

Hang Seng Indexes Company announced the results of its quarterly review after the market closed on August 21, 2026. A phased implementation arrangement will be adopted starting with this review: index changes that do not require Stock Connect eligibility will generally be implemented after the market closes on September 4, while changes requiring Stock Connect eligibility will be delayed by one week and implemented after the market closes on September 11. Consequently, passive-fund trading and Stock Connect eligibility changes may be concentrated in two separate effective windows. At the constituent level, Hua Hong Semiconductor (1347) and Weichai Power (2338) will be added to the Hang Seng Index, increasing the total number of constituents from 93 to 95; the Hang Seng China Enterprises Index will remain unchanged at 50 constituents. The Hang Seng TECH Index will remain at 30 constituents, with Shanghai Enflame Technology (9903) replacing Tongcheng Travel (780). The Hang Seng Composite Index currently has 534 constituents and will add 61 stocks and remove 15. After accounting for weighting-cap resets, free-float ratios, and share-capital changes, the weights requiring adjustment in the Hang Seng Index, Hang Seng China Enterprises Index, Hang Seng TECH Index, and Hang Seng Composite Index are 2.1%, 1.3%, 2.7%, and 0.9%, respectively. The simulated post-rebalancing index market capitalizations are expected to be: US$2.202 trillion for the Hang Seng Index, up 1.6%; US$1.436 trillion for the Hang Seng China Enterprises Index, up 1.5%; US$449 billion for the Hang Seng TECH Index, down 2.6%; and US$3.394 trillion for the Hang Seng Composite Index, up 0.7%. Simulated three-month average daily turnover amounts are US$15.5 billion, US$11.9 billion, US$10.9 billion, and US$26.6 billion, representing changes of 6.3%, 0.0%, 1.3%, and 4.0%, respectively, relative to current levels. This indicates that although the simulated market capitalization of the Hang Seng TECH Index declines, its trading liquidity still improves slightly. Only limited changes occur in index valuation and growth composition. The Hang Seng Index's next-12-month P/E rises from 11.1x to 11.2x, while its 2026—2027 EPS CAGR increases from 11.5% to 11.6%; both metrics for the Hang Seng China Enterprises Index remain unchanged at 10.0x and 11.8%. The Hang Seng TECH Index's next-12-month P/E rises from 17.3x to 17.5x, but its 2026—2027 EPS CAGR declines from 39.5% to 37.9%; the Hang Seng Composite Index's P/E remains at 11.3x, while its EPS CAGR declines from 15.7% to 15.4%. For trailing-12-month dividend yields, the Hang Seng Index declines from 3.5% to 3.4%, the Hang Seng China Enterprises Index declines from 3.6% to 3.5%, the Hang Seng TECH Index remains at 1.6%, and the Hang Seng Composite Index remains at 3.4%. Goldman Sachs estimates that the adjustments could generate more than US$7.2 billion in combined two-way passive buying and selling across the entire Hang Seng Index series. By industry, technology hardware and semiconductors are expected to receive the largest passive buying, at approximately US$870 million; software and services and internet and media are each expected to receive inflows of US$190 million to US$230 million. Banks are expected to face the largest outflows, at approximately US$800 million, while utilities and consumer retail are each expected to see outflows of US$100 million to US$140 million. These fund-flow changes arise from constituent additions or deletions, free-float ratio adjustments, and weighting-cap resets. At the individual-stock level, the six stocks expected to receive the largest passive net purchases are Trip.com Group, Lenovo, Hua Hong Semiconductor, Weichai Power, Tencent, and SMIC. Trip.com Group and Lenovo are mainly supported by increases in their free-float ratios; Hua Hong Semiconductor and Weichai Power by their inclusion in the Hang Seng Index; and Tencent and SMIC by higher weights following weighting-cap resets. Potential inflows range from approximately US$160 million to US$470 million. Stocks expected to see larger outflows include HSBC Holdings, Meituan, NetEase, Xiaomi, Tongcheng Travel, and China Construction Bank: the first four are mainly affected by weight reductions; Tongcheng Travel by its deletion from the Hang Seng TECH Index; and China Construction Bank by its deletion from the Hang Seng High Dividend Yield Index as well as fund arrangements involving the Hang Seng Index and Hang Seng China Enterprises Index. Potential outflows range from approximately US$100 million to US$520 million. Performance before the announcement reflects different momentum backdrops. Over the 20 trading days before the announcement, the return of Hang Seng Index additions was -11.7%; the returns of Hang Seng TECH Index additions and deletions were -28.3% and +1.4%, respectively; and the returns of Hang Seng Composite Index additions and deletions were +10.8% and -2.9%, respectively. In the corresponding changes in average 20-day turnover, Hang Seng Index additions recorded -14%; Hang Seng TECH Index additions and deletions recorded +32% and -34%, respectively; and Hang Seng Composite Index additions and deletions recorded -24% and -18%, respectively. Therefore, the current Hang Seng Index and Hang Seng TECH Index additions lagged their benchmarks or deleted stocks before the announcement, consistent with recent momentum characteristics, while Hang Seng Composite Index additions continued their historically superior pre-announcement performance. Rebalancing events over the past five years show that Hang Seng Index additions typically modestly outperform after the announcement but are prone to reversals near the effective date; the relative outperformance of Hang Seng TECH Index additions versus deletions generally persists through the effective date and then stabilizes; and the relative strength of Hang Seng Composite Index additions also typically continues after the announcement. Accordingly, the report does not view inclusion itself as a uniform signal of sustained appreciation, but instead emphasizes that different indexes have distinct historical paths between the announcement date and effective date. Adjustments to the Hang Seng Composite Index will also change the Stock Connect eligibility of certain stocks. Stocks with weighted voting-rights structures must meet more stringent listing-history, market-capitalization, and liquidity requirements. Historically, during the first two trading days after a stock is added to Stock Connect, southbound ownership rises by approximately 2 percentage points, followed by an increase of approximately 9 percentage points over the subsequent three months; share prices often rise before inclusion, retreat after the effective date, and then gradually stabilize. Stocks removed from Stock Connect typically experience a 1-percentage-point decline in southbound ownership during the first two trading days, followed by a further 4-percentage-point decline over the subsequent three months, while their share prices often remain under pressure.

Analysis framework

The report first reviews constituent changes and implementation dates for four Hang Seng index categories, then constructs simulated indexes based on constituent changes, weighting caps, free-float ratios, and share-capital changes. It subsequently compares market capitalization, liquidity, P/E ratios, dividend yields, and EPS growth before and after the adjustments and estimates passive funds' buying and selling requirements by industry and individual stock. Finally, the report uses rebalancing events and Stock Connect inclusion and deletion samples from the past five years to compare relative returns, turnover, and changes in southbound ownership before and after announcements.

Methodology notes

• Event Trading and Behavioral FinanceEvent-driven analysis

  Index Rebalancing Event Study

  The report uses the quarterly review announcement date and formal effective date as key event nodes, comparing the relative performance of additions and deletions before and after the announcement and around the effective date.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Passive Fund-Flow Supply-Demand Estimation

  Changes in index weights compel tracking funds to buy and sell stocks according to the new weights; the report uses this mechanism to estimate the mechanical buying or selling demand that industries and individual stocks may face.

• Valuation MethodologyP/E and PEG Valuation

  Comparison of Next-12-Month P/E and EPS Growth

  The report compares next-12-month P/E ratios before and after rebalancing and combines them with 2026—2027 EPS CAGRs to assess how constituent changes affect index valuation and growth composition.

• Quantitative/Factor/Portfolio Theory

  Simulated Index and Free-Float Market-Capitalization Calculation

  The report reconstructs simulated indexes based on adjusted constituents, weighting caps, share capital, and free-float ratios; free-float market capitalization uses the average of estimates from Bloomberg, FactSet, and Refinitiv.

• Event Trading and Behavioral FinanceFund-Flow/Positioning Analysis

  Southbound Ownership Tracking

  The report measures the persistent fund-flow impact of eligibility changes by examining changes in southbound ownership during the two days and three months following Stock Connect inclusion or deletion.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hang Seng Index (HSI)

  Hua Hong Semiconductor (1347) and Weichai Power (2338) will be added, increasing the number of constituents from 93 to 95 and requiring a 2.1% weight adjustment.

  Strengths

  Simulated market capitalization increases by 1.6%, while the 2026—2027 EPS CAGR edges up from 11.5% to 11.6%.

  Weaknesses

  The trailing-12-month dividend yield declines from 3.5% to 3.4%.

  Comparison

  Historically, additions typically modestly outperform after the announcement but are prone to reversals near the effective date.

  Risks

  Historical reversals around the effective date may erode post-announcement relative returns.

• Hang Seng China Enterprises Index (HSCEI)

  The number of constituents remains unchanged at 50, but factors such as weighting-cap resets still result in a 1.3% weight adjustment.

  Strengths

  The next-12-month P/E of 10.0x and the 2026—2027 EPS CAGR of 11.8% both remain unchanged.

  Weaknesses

  The trailing-12-month dividend yield declines from 3.6% to 3.5%.

  Comparison

  Simulated market capitalization increases by 1.5%, but the constituent composition does not change.

• Hang Seng TECH Index (HSTECH)

  Shanghai Enflame Technology (9903) will be added and Tongcheng Travel (780) will be removed, requiring a 2.7% weight adjustment.

  Strengths

  Simulated three-month average daily turnover increases by 1.3%, while the next-12-month P/E rises from 17.3x to 17.5x.

  Weaknesses

  Simulated market capitalization declines by 2.6%, while the 2026—2027 EPS CAGR falls from 39.5% to 37.9%.

  Comparison

  Historically, the relative strength of additions generally persists through the effective date and then stabilizes.

  Risks

  The current addition underperformed before the announcement, and its excess performance may not continue to expand after the effective date.

• Hang Seng Composite Index (HSCI)

  The index will add 61 stocks and remove 15, and the related changes will alter the Stock Connect eligibility of certain stocks.

  Strengths

  Simulated market capitalization increases by 0.7%, while current additions outperformed deletions before the announcement, consistent with the historical pattern.

  Weaknesses

  The 2026—2027 EPS CAGR declines from 15.7% to 15.4%.

  Comparison

  Historical patterns over the past five years show that the relative strength of additions typically continues after the announcement.

  Risks

  Stock Connect deletion may lead to lower southbound ownership and sustained share-price pressure.

• Trip.com Group, Lenovo, Hua Hong Semiconductor (1347), Weichai Power (2338), Tencent, SMIC

  The report expects these stocks to rank as the six largest passive net purchases, with potential inflows of approximately US$160 million to US$470 million.

  Strengths

  The inflows are respectively driven by higher free-float ratios, inclusion in the Hang Seng Index, or increased weights following weighting-cap resets.

  Comparison

  This group is expected to receive the largest passive purchases in the current Hang Seng Index series rebalancing.

  Risks

  Historically, some additions may experience relative-performance reversals around the effective date.

• HSBC Holdings, Meituan, NetEase, Xiaomi, Tongcheng Travel (780), China Construction Bank

  The report expects these stocks to face passive net outflows of approximately US$100 million to US$520 million.

  Weaknesses

  HSBC Holdings, Meituan, NetEase, and Xiaomi are subject to weight reductions; Tongcheng Travel will be removed from the Hang Seng TECH Index; and China Construction Bank is affected by an index deletion and related fund arrangements.

  Comparison

  This group is expected to face the largest passive selling in the current rebalancing.

  Risks

  Concentrated passive selling may create short-term trading pressure.

Key data

• Implementation DateAfter the market closes on September 4 or September 11, 2026The specific implementation date depends on whether Stock Connect eligibility is required
• Hang Seng Index Constituent Changes2 additions and 0 deletions; increasing from 93 to 95Hua Hong Semiconductor (1347) and Weichai Power (2338) will be added
• Hang Seng TECH Index Constituent Changes1 addition and 1 deletionShanghai Enflame Technology (9903) will replace Tongcheng Travel (780)
• Hang Seng Composite Index Constituent Changes61 additions and 15 deletionsThe adjustments will change the Stock Connect eligibility of certain stocks
• Weights Requiring AdjustmentHang Seng Index 2.1%; Hang Seng China Enterprises Index 1.3%; Hang Seng TECH Index 2.7%; Hang Seng Composite Index 0.9%Includes weighting-cap resets and changes in free float and share capital
• Simulated Index Market CapitalizationUS$2.202 trillion/US$1.436 trillion/US$449 billion/US$3.394 trillionFor the Hang Seng Index, Hang Seng China Enterprises Index, Hang Seng TECH Index, and Hang Seng Composite Index, respectively, representing changes of +1.6%, +1.5%, -2.6%, and +0.7%
• Simulated Three-Month Average Daily TurnoverUS$15.5 billion/US$11.9 billion/US$10.9 billion/US$26.6 billionRepresenting changes of +6.3%, 0.0%, +1.3%, and +4.0%, respectively, versus current levels for the four index categories
• Next-12-Month P/EHang Seng Index 11.1x→11.2x; Hang Seng China Enterprises Index 10.0x→10.0x; Hang Seng TECH Index 17.3x→17.5x; Hang Seng Composite Index 11.3x→11.3xComparison before rebalancing and after simulated rebalancing
• 2026—2027 EPS CAGRHang Seng Index 11.5%→11.6%; Hang Seng China Enterprises Index 11.8%→11.8%; Hang Seng TECH Index 39.5%→37.9%; Hang Seng Composite Index 15.7%→15.4%Comparison before rebalancing and after simulated rebalancing
• Estimated Two-Way Passive Fund FlowsMore than US$7.2 billionTotal passive buying and selling generated by adjustments across all Hang Seng indexes
• Largest Industry InflowTechnology hardware and semiconductors: approximately US$870 millionSoftware and services and internet and media are each expected to receive inflows of US$190 million to US$230 million
• Largest Industry OutflowBanks: approximately US$800 millionUtilities and consumer retail are each expected to see outflows of US$100 million to US$140 million
• Potential Inflows Into Major Individual StocksUS$160 million to US$470 millionInvolving Trip.com Group, Lenovo, Hua Hong Semiconductor, Weichai Power, Tencent, and SMIC
• Potential Outflows From Major Individual Stocks-US$100 million to -US$520 millionInvolving HSBC Holdings, Meituan, NetEase, Xiaomi, Tongcheng Travel, and China Construction Bank
• Changes in Southbound Ownership After Stock Connect Inclusion+2 percentage points within two days, followed by +9 percentage points over the subsequent three monthsHistorical samples show that share prices often rise before inclusion, decline after the effective date, and then stabilize
• Changes in Southbound Ownership After Stock Connect Deletion-1 percentage point within two days, followed by a further decline of 4 percentage points over the subsequent three monthsHistorical samples show that deleted stocks typically remain under pressure

Impact & implications

The report believes index adjustments will alter short-term trading demand for the relevant industries and stocks through passive-fund rebalancing. Semiconductors, software services, and internet and media may receive concentrated buying, while banks, utilities, and consumer retail may face selling. However, historical experience shows that the relative strength following index inclusion does not necessarily persist, and Hang Seng Index additions in particular may reverse around the effective date. Changes to the Hang Seng Composite Index will also further affect southbound ownership and share-price trajectories through Stock Connect eligibility.

Risks

• Historically, Hang Seng Index additions often initially outperform after the announcement but may reverse as the formal effective date approaches.
• The prices of stocks added to Stock Connect typically rise before the effective date and may decline afterward before gradually stabilizing.
• Historically, the southbound ownership of stocks removed from Stock Connect continues to decline, while their share prices also often face more persistent pressure.

What to watch

• Monitor the implementation of adjustments not involving Stock Connect eligibility after the market closes on September 4, 2026, and the implementation of adjustments involving Stock Connect eligibility after the market closes on September 11.
• Track actual passive fund flows in technology hardware and semiconductors, software services, internet and media, and banks.
• Monitor potential inflows into Trip.com Group, Lenovo, Hua Hong Semiconductor, Weichai Power, Tencent, and SMIC, as well as potential outflows from HSBC Holdings, Meituan, NetEase, Xiaomi, Tongcheng Travel, and China Construction Bank.
• Track Stock Connect eligibility changes following the Hang Seng Composite Index adjustment and changes in southbound ownership over the two days and three months after the effective date.
• Monitor whether Hang Seng Index additions experience the historically common relative-performance reversal around the effective date.