New entrants

15 companies have entered the index this year

For several years, FinanceAsia's FA100 has been Asia's leading index for the region's blue chips. As the FA100 matures with each year, there are also a handful of consistent themes that have come to characterise our index, which gets reconstituted annually in December.

Firstly, the top firms rarely change. Aside from the odd injection from a mega China-listing, the top 20 most profitable companies are usually in roughly the same position each year. Secondly, certain sectors such as financials, natural resources and technology will continue to dominate the index due to their conspicuous standing in the regional economy.

As with previous years, the FA100 is recalibrated every December and this usually involves a lot of chopping and changing within the index. This annual process is carried out to ensure that the index comprises only of Asia's most successful corporations. The process of inclusion and elimination is completed by aggregating three years of profitability of Asian companies (non-Australia and Japan), the aim being to provide the most comprehensive list of Asian blue chips.

In 2005, there were 20 new entrants on the FA100, which marked the single biggest change to the FA100 since its inception in September 2002. This year the activity was again extremely fruitful with 15 companies departing from the index, replaced by 15 entrants – some joining the FA100 for the first and others returning to the FA100 following a hiatus.

Out of the 15 firms that no longer have a home on the FA100, three of the departures were from the financial sector. Three industrial companies were also pushed off the FA100 in September, while the power, technology, telecommunications and natural resources sector each saw two constituents leave the index.

Of the new inclusions in the reconstituted FA100, the financial, real estate and transportation sectors were all well represented. In the financial sector space, no less than seven firms, coming from the banking, insurance and financial holding company space, joined the FA100. Real Estate firms also bulked up their standing on the index, adding three new Hong Kong names, as did the region's booming transportation sector also boosted by three new inclusions.

The new additions to the FA100 take on a distinctively Northeast Asia feel, aside from the fact that several Indian firms also found their way onto the index. Of the 15 new inclusions on the FA100, 13 came from either China, Hong Kong, South Korea or Taiwan. The corporate landscape of China and South Korea contributed five and four apiece, while Hong Kong chipped in with three new FA100 members and Taiwan one.

On the surface, China's five new additions to the FA100 was a more significant feat than that of the South Korean corporates. Although both nations added significant numbers of firms to the FA100 in September 2006, the world's most populated nation saw only one company (Citic Pacific) drop out, while South Korea lost two (Hyundai Merchant Marine, Ssangyong Motor Company).

Undoubtedly, China's major contribution to the FA100 in 2006 was from China Construction Bank (CCB). At the time of its October 2005 IPO, the $9 billion listing by CCB was the largest globally since 2001. China's third largest lender and the first of the big four state owned banks to come to market generated roughly $80 billion in demand from investors. It also rocketed into the FA100's top 10 most profitable companies, landing at number five out of all constituents.

CCB's sector rival, Bank of Communications (BoComm), China's fifth largest bank by assets, also joined the FA100 following its June 2005 listing. Backed by a substantial investment by HSBC, which totals approximately 20% of the bank, BoComm went from strength to strength over the past 12 months, reporting a 30% rise in third quarter profit on the back of high loan growth.

The success of China's financial services sector was also underpinned by the arrival of Ping An Insurance to the index, joining main rival and non-Japan Asia's largest insurer China Life. Aside from collecting approximately $9 billion in premium during the first 10 months of 2006, Ping An has approximately 40 million retail customers and two million corporate customers.

Elsewhere in China, the country's transportation firms have started to come to prominence. Firstly, China Shipping Container Lines ascended to the index after its much publicised listing in Hong Kong several years back. As of January 2006, China Shipping was the world's eighth largest container shipping firm, controlling 3.8% of global market share.

Not to be outdone, rival container line China COSCO Holdings landed on the FA100. The firm was formed last year as the Hong Kong listed flagship of the COSCO Group for its shipping business, to provide integrated container shipping, container terminal, container leasing and freight forwarding and shipping agency services to international and domestic customers.

Over in Korea, similar themes played out with finance sector firms taking a chunk of the country's five additions to the index. Industrial Bank of Korea saw its net income balloon in 2005 by 110% annually, while into 2006, assets have increased by 24% year-on-year in the third quarter. As one of Korea's most visible industries, it is not surprising that the technology sector added another member to the FA100 in the form of Hynix Semiconductor. Its admission into the index demonstrates one of Asia's great corporate rebound stories. In July 2005, the Korean semiconductor firm emerged from a credit restructuring programme. It had been in this programme since 2001 when creditors took control of the company via a debt-for-equity swap after it succumbed to a $10 billion debt burden and industry downturn.

Within the transportation sector, Korea's Hanjin Shipping also flew the national flag, becoming one of three container shipping firms to the join the index, becoming one of six on the FA100. Over 2006, the company boosted its vessel numbers by five – which means by 2008 Hanjin will have more than 80 container ships operating 60 global routes.

Rounding out the Korean inclusions to the FA100 is Hyundai Steel, which becomes the latest member of Hyundai group to join the index. Financially, the company also recorded a banner year in 2005 when it more than doubled net income in a period of flat revenues.

Hong Kong again added several new companies to the FA100, which (unsurprisingly) came from the real estate sector. On the back of a strong residential and in particular, a booming commercial sector, Hongkong Land, Hang Lung Properties and Sino Land all posted banner years as the sector returned to the forefront of the Hong Kong economy.

In Taiwan, which saw three companies removed from this year's FA100, Mega Financial Holdings was the sole inclusion. The finance firm re-entered the FA100 after a one-year hiatus despite seeing its assets fall year-on-year and a drop off in net profit.

Outside of Northeast Asia, India provided the majority of the new inclusions to the index. Infosys Technologies, regarded as India's best managed company, rejoins the FA100 after a one year break. The technology firm, which just raised $1.6 billion in the form of American Depository Receipts (ADRs), saw an exponential growth in both assets and net income for the fiscal year of 2005.

Marketed as the world's cheapest steel producer, Tata Steel is increasingly a bigger player on the international steel space, as evidenced by its multi-billion bid for European firm, Corus. Joining sister company, Tata Consultancy Services on the index, Tata Steel has recently made significant investments in Australia and Thailand and looks set to become a permanent fixture in the index.

Although there were no new additions from Indonesia, Malaysia and Singapore, Thailand managed to fly the Southeast Asia flag on the back of Bangkok Bank rejoining the FA100. Thailand's number one bank returns to the index after recording its highest profit since the halcyon days of 1997 and witnessing non-perfoming loans drop to 10.8% in 2005.