The quarterly Hang Seng Index (HSI) review will be released tomorrow, and China COSCO Holdings looks to be pegged as the newest addition to the HSI family.

The largest container line shipper in China may replace sports-shoe maker Yue Yuen Industrial, which could be removed from the benchmark index, as it has been the HSI's worst-traded stock for two years.

"On the heels of projected index weighting and relative market-cap and liquidity rankings, we put China COSCO (H-share) on the watch list for an HSI addition," Sandy Lee, analyst at Japan's largest brokerage Nomura, said in a research note.

Shipping giant China COSCO Holdings appears to be the frontrunner to join the Hang Seng Index family, while some analysts expect sports-shoe maker Yue Yuen Industrial to be deleted. AFP

The Hang Seng Indexes company will unveil its decisions regarding the quarterly review of the HSI and the semi-annual review of the Hang Seng China Enterprises Index after the market closes tomorrow. Changes, if any, will be applied at the Sept 8 market opening.

Based on the 12-month full-market cap, Nomura said six eligible companies fell within the top-60 rankings. But only China COSCO has a relatively important index weighting of around 0.9 percent.

China COSCO may 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 had the lowest trading level of any stock in the gauge in the past eight quarters, according to Nomura.

Adding China COSCO would reflect the trend of an increasing number of large companies tend to be from Chinese mainland.

Mainland companies trading in Hong Kong, known as H-shares, made up 25 percent of the value traded on the Hong Kong stock exchange's mainboard at the end of June, up from 1.5 percent at the end of 1997.

Shares in China COSCO have fallen 23 percent this year, and the stock closed at HK$16.56 on Tuesday. And as of Tuesday, Yue Yuen had slumped 29 percent this year.

But Castor Pang, an analyst at Sun Hung Kai Financial, 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," he said.

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

China Railway, builder of more than half of the nation's railroads, has climbed 14 percent since its March initial offering was priced at HK$10.70 a share.

Guangshen Railway has plunged 38 percent this year.

Bloomberg contributed to the story.

(HK Edition 08/07/2008 page2)