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China bank joining Hang Seng index
By Geoff Hiscock
HONG KONG, China (CNN) -- BOC Hong Kong (Holdings) Ltd. will enter the key Hang Seng index on December 2. That will lift the weighting of bank stocks in the index to almost 40 percent. Fashion retailer Esprit Holdings will also join the 33-member Hang Seng. The index covers about 80 percent of the total market capitalization of the Hong Kong Stock Exchange. BOC, the Hong Kong-listed arm of the Bank of China, only started trading on July 25, after it raised $2.7 billion in an initial public offering. (Full story) It was one of a handful of Hong Kong stocks to close in the black on Monday as a broad downturn grips most Asian markets. (Asia roundup) The stock ended up 0.61 percent to HK$8.20, compared with a fall of 1.94 percent for the broader market. Esprit, which runs stores of the same name, gave up morning gains to close flat at HK$13.50. It had gained 16 percent in a month, with the changes looking likely. HSI Services Ltd., which runs the index for the exchange, said it is dropping two property companies, Hang Lung Group and Hysan Development, to make way for the bank and Esprit. Waiting period
BOC Hong Kong becomes the sixth stock to join the Hang Seng index before completing the normal two-year waiting period. HSI said it was making an exception because of its "market capitalization, turnover and industry representation". Its parent, the Bank of China, is one of China's four big state-owned banks and the only one yet to achieve an overseas listing. (Full story) The others -- Agricultural Bank of China, China Construction Bank, Industrial & Commercial Bank of China -- are due to go public by 2005. They are under orders, like the BOC, to reduce their bad loans, estimated at more than $200 billion. Bank of China, which holds 75 percent of BOC Hong Kong, plans to list in China within three years. But first it must improve its loan book and its corporate governance. Like a number of Chinese enterprises, Bank of China has been tarnished by corruption allegations involving senior executives. It was fined a total of $20 million by U.S. and Chinese banking authorities in January for irregular lending at its New York office, and also revealed million-dollar fraud in its Guangdong operations. (Full story) Expelled from partyIts former president Wang Xuebing was expelled from the Communist Party last week. Wang, the former head of the bank's New York operations, left the bank at the start of 2000 and in January was removed from his Chinese banking positions. Last week, Chinese officials told media that former vice president Zhao Ange, who spent 25 years at the Bank of China before moving to the Agricultural Bank a year ago, was also under investigation. Last month ratings agency Fitch said BOC Hong Kong's financial position and profitability was improving, but it still needed to reduce its percentage of non-performing loans to match the level of leading Hong Kong banks. Cleanup neededAnalysts say Industrial & Commercial Bank and China Construction Bank likewise will need to clean up nonperforming loans before they sell shares to Chinese and overseas investors. One thing on the banks' side is the continuing strong growth being reported by China. Economic planners at the 16th Communist Party Congress in Beijing told reporters on Sunday that the economy was on track to grow by 8.0 percent this year. (Full story) Bank stock HSBC is already the largest listing in Hong Kong. But the Hang Seng will likely become even more bank heavy next year, with British bank Standard Chartered expected to join the index. StanChart has risen 10.1 percent since it went public on October 31 (Full story), though it fell 2.6 percent to HK$92.50 on Monday.
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