17 August 2017

Hang Seng Indexes Announces

Hang Seng China Enterprises Index Enhancement Details
Hang Seng Indexes Company Limited (“Hang Seng Indexes”) has consulted a wide range of
market participants on the Hang Seng China Enterprises Index Enhancement Proposal it
released in March 2017. Following these consultations, it was announced in May 2017 that
Red-chips and private enterprises (P-chips) will be eligible to join the Hang Seng China
Enterprises Index (“HSCEI”) as index constituents. Based on the opinions received during
the consultation and input from the HSI Advisory Committee, the following are the key
elements of the HSCEI enhancement.

Definition of P-chips

P-chips will be determined by considering their business exposure. P-chips are companies
that have more than 50% of their sales revenue (or profits or assets, if more appropriate)
derived from mainland China but are not H-shares or Red-chips.

Number of Red-chips and P-chips to be added to HSCEI

A collective total of 10 Red-chips and P-chips will be added to the HSCEI. The number of
H-shares constituents in the index will remain at 40. The total number of constituents will
therefore increase from 40 to 50 after the change.

Additional Eligibility Screenings for Red-chips and P-chips

To address the different risk profiles of Red-chips / P-chips as compared with H-shares, it has
been decided that additional eligibility screenings will be applied for potential incoming
Red-chips / P-chips constituents. The constituent selection criteria for H-shares will remain
unchanged.

more…
Hang Seng Indexes Announces Hang Seng China Enterprises Index Enhancement Details /2

Additional Eligibility Screenings Requirements

a) Listing History
b) Price Volatility
c) Financial
Three years for companies listed through an IPO; or
Six years for companies listed through a backdoor
listing.
AND
The past one-month, three-month and 12-month
historical price volatility of a potential constituent
should not be more than three times the historical price
volatility of the HSCEI for the respective period.
AND
The following financial parameters of the company in
the past three fiscal years must be greater than zero:
• Profit
• Net Cash Generated from Operating Activities
• Cash Dividends

Selection of 10 Red-chips and P-chips constituents

Eligible Red-chips and P-chips will be selected by combined market capitalisation rank (an
overall rank considering both full market capitalisation and freefloat-adjusted market
capitalisation), which is the same as the constituent selection method for H-shares in the
HSCEI.

The additional 10 Red-chips and P-chips constituents will be selected in the index review
with a data cutoff of end-December 2017. The announcement will be made in February 2018
together with the regular index review results.

Implementation of Adding 10 Red-chips and P-chips constituents

To minimise the potential impact on the market, the 10 Red-chips and P-chips constituents
will be added to the HSCEI in five phases over a period of 12 months. The additional 10
constituents will be added to the HSCEI by adopting an inclusion factor and an adjusted cap
level in each phase according to the following table:

Phase Month* Inclusion Factor Adjusted Cap Level

1 March 2018 0.2 2%
2 June 2018 0.4 4%
3 September 2018 0.6 6%
4 December 2018 0.8 8%
5 March 2019 1.0 10%
* The rebalancing date of regular index review. Exact dates will be announced in February 2018.

Illustration of the transition process is provided in the Appendix.

more…
Hang Seng Indexes Announces Hang Seng China Enterprises Index Enhancement Details /3

About Hang Seng Indexes Company Limited

The Hang Seng Family of Indexes is managed and compiled by Hang Seng Indexes Company Limited (formerly
HSI Services Limited), which is a wholly-owned subsidiary of Hang Seng Bank. The Hang Seng Family of
Indexes comprises a wide range of Flagship, Benchmark, Thematic, Strategy and Bond indexes that cover
stocks/bonds listed in Hong Kong/mainland China markets. For further information on the Hang Seng Family of
Indexes, please visit the company's website at www.hsi.com.hk.

# End #
 Appendix
Hang Seng China Enterprises Index (After Enhancement)
Illustration of the transition process

(Indicative weighting based on 30 Jun 2017 data)

Weighting (%)
Phase1 Phase2 Phase3 Phase4 Phase5
Constituents Mar-18 Jun-18 Sep-18 Dec-18 Mar-19
H-shares 93.8 87.7 81.5 75.3 69.2
Red-chips & P-chips 6.2 12.3 18.5 24.7 30.8
Company 1 2.0 4.0 6.0 8.0 10.0
Company 2 2.0 4.0 6.0 8.0 10.0
Company 3 0.8 1.6 2.4 3.2 4.0
Company 4 0.3 0.6 1.0 1.3 1.6
Company 5 0.3 0.5 0.8 1.1 1.4
Company 6 0.2 0.4 0.6 0.8 1.0
Company 7 0.2 0.3 0.5 0.6 0.8
Company 8 0.2 0.3 0.5 0.6 0.8
Company 9 0.1 0.3 0.4 0.6 0.7
Company 10 0.1 0.2 0.4 0.5 0.6
Total 100.0 100.0 100.0 100.0 100.0
Inclusion Factor 0.2 0.4 0.6 0.8 1.0
Figures may not add up to totals due to rounding.