China Netcom, Chinese mainland's second-largest fixed-line phone carrier, is the front runner to join Hong Kong's blue-chip Hang Seng Index.

Quantitative analyst at UBS Investment Bank, Veronica Ho, says China Netcom's market capitalization is big and the Hang Seng Index stresses market capitalization.

Though China Netcom can't make it into the index this quarter, it will in the next review.

Mainland computer maker Lenovo Group and property conglomerate Wheelock & Co. are viewed as the most likely to be ejected the next time the Index is reshuffled.

China Netcom has a market capitalization of some 10 billion US dollars, four times bigger than Lenovo's, and triple that of Wheelock.

The 33 blue-chip constituents are reviewed every quarter and changes are typically made once a year based on market value, trading turnover and sector representation.

The index is dominated by banking, property and telecom stocks. It is becoming more mainland-focused, even though only some Hong Kong-listed mainland firms are eligible for inclusion.

Longer-shot candidates to join the HSI include Hong Kong Stock Exchanges and Clearing, mainland’s top chipmaker Semiconductor Manufacturing International Corp. and property developer Sino Land.

The prize for winning blue-chip status is inclusion in more portfolios as must-have holdings for index investors.

Some investors said an index reshuffle was unlikely, as the top official at index compiler HSI Services had said frequent changes to the makeup of the index were not desirable.

The previous reshuffle, in September, replaced broadcaster TVB and Shanghai Industrial with automaker Denway Motors and ports operator China Merchants Holdings.

(CRI.com February 17, 2005)