China Coal is likely to miss out on inclusion in Hong Kong's Hang Seng Index(HSI), leaving the benchmark unchanged in the first quarter, analysts said.

As a result of its Shanghai IPO at the start of the month, China Coal has no unlisted share capital, a prerequisite for entry into the Hang Seng.

But a market value of about HK$210 billion for China's second-largest coal producer ranks it 54th by 12-month average market capitalization, according to BNP Paribas, making it a longshot for index inclusion.

The index currently has 43 constituents, below its limit of 50. Compiler HSI Services Ltd, which bases its criteria on market capitalization, trading turnover and the proportion of the firm's shares that are freely traded, is expected to announce the results of this year's first quarterly review on Feb 15.

"There are no big counters that qualify at the moment," said Ernie Hon, an analyst at ICEA Securities.

In 2007, all seven companies that were admitted to the HSI operated on the Chinese mainland, underscoring the dominance of mainland companies in the city's equity market.

Mainland firms account for about 30 percent of the companies listed in Hong Kong but command about half of Hong Kong's roughly $2 trillion market cap and more than 60 percent of the total trading volume.

Revisions to the index are especially relevant to tracker funds, whose mandate it is to mirror its performance.

A stock that is added to or deleted from the index would trigger corresponding selling or buying, and some investors speculate on the likely changes ahead from the mandatory buying or selling.

BNP estimates HSI tracker funds total about HK$54 billion.

Reuters

(HK Edition 02/12/2008 page2)