China Cosco May Join Hang Seng, Yue Yuen to Leave, Nomura Says

By Hanny Wan

Aug. 4 (Bloomberg) -- China Cosco Holdings Co., the world's largest operator of iron-ore and coal ships, may join Hong Kong's Hang Seng Index and sports-shoe maker Yue Yuen Industrial (Holdings) Ltd. may be removed as part of a quarterly review, according to Nomura Holdings Inc.

China Cosco, based in Tianjin in northeastern China, would become the 11th company from the mainland to be included in the Hang Seng Index. Hong Kong-Based Yue Yuen may be dropped because it has the lowest trading level of any stock in the gauge, according to Nomura, Japan's largest brokerage, and Fulbright Securities Ltd.

Adding China Cosco would ``reflect the trend that an increasing number of large companies tend to be from mainland China,'' said Francis Lun, general manager at Fulbright, a Hong Kong-based brokerage.

Mainland companies that trade in Hong Kong, known as H shares, made up 25 percent of the value traded on the Hong Kong stock exchange's main board at the end of June, up from 1.5 percent at the end of 1997. The city's $2.12 trillion stock market is Asia's third-biggest after Japan and China.

HSI Services Inc., which compiles the benchmark indexes, said in February 2007 that it plans to expand the Hang Seng Index to 50 companies from 43. The changes, based on criteria such as market capitalization and trading volume, may prompt funds that buy shares based on the index to adjust their holdings. HSI Services will announce the changes on Aug. 8.

China Cosco Declines

Shares of China Cosco fell 15 percent this year, less than the 18 percent decline in the Hang Seng Index.

About 31 million of the company's shares traded daily this year, up from 25.8 million in the same period a year earlier. It ranks 59th among all the companies listed on Hong Kong's exchange by average market value, Sandy Lee, a quantitative analyst at Nomura in Hong Kong, wrote in a research note dated July 29.

Yue Yuen slumped 27 percent this year. Castor Pang, an analyst at Sun Hung Kai Securities in Hong Kong, said Yue Yuen may be kept on the Hang Seng index.

``There's no urgency in deleting Yue Yuen, given that the goal is to increase the membership to 50,'' Pang said.

China Railway Construction Corp., based in Beijing, may join the Hang Seng China Enterprises Index, which tracks H shares, while Shenzhen, China-based Guangshen Railway Co. may be removed, according to the Nomura report.

China Railway, builder of more than half the nation's railroads, climbed 14 percent since its March initial offering was priced at HK$10.70 ($1.37) a share. Guangshen Railway, the operator of trains in China's richest province, plunged 31 percent this year.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net