May 17 (Bloomberg) -- The shares of New World Development Co. and Sino Land Co., two of Hong Kong's largest property developers, will probably rise today after the Hang Seng Index's compiler said the companies' stocks will rejoin the benchmark.

Index funds may take several days to sell their stock in Henderson Investment Ltd. and Wheelock & Co., among the least- traded in the index, and this may lengthen the rally in New World and Sino stock, said Aaron Pong, who manages about $3 billion at Standard Life Investments in Hong Kong.

Any index changes after a review would prompt funds that mirror Hong Kong's stock benchmarks, such as the $3.6 billion Tracker Fund of Hong Kong and the $1 billion Hang Seng Index exchange-traded fund, to alter their holdings.

``We expect some index funds to do some reshuffling,'' Pong said in a phone interview on May 15. ``Aside from that, we're still looking at how fundamentals and the assets of the companies themselves stack up.''

Sino Land's shares have almost doubled in the past 12 months. Stock in New World has risen 86 percent over the same period. Both counters have declined in 2005. The re-inclusion in the index was announced after the Hong Kong market closed May 13.

Hong Kong's real estate companies may decline should the differential between Hong Kong interest rates and higher U.S. interest narrow, especially if China doesn't announce a yuan revaluation this week, Pong said. Sino is a real estate developer and a quarter of New World's sales came from property in 2004.

Hong Kong interest rates are low because investors have purchased the local currency in expectation the city will follow any revaluation of the yuan by increasing the value of its own currency, pegged at about 7.78 to the U.S. dollar.

Property Market

``Either there's no news, and money leaves, or there is an announcement and it's `buy on rumor, sell on fact,' in which case money also leaves,'' Pong said. ``If this happens, we have to refocus on whether that changes the demand landscape for the Hong Kong property counters.''

Sino, controlled by the family of Ng Teng Fong, Singapore's second-richest man, has bought land in both good times and bad, so its average development costs are quite low and profit margins can be ``quite substantial,'' Pong said.

``Sino is more of a middle-class developer by-and-in- large,'' Pong said. ``You need the whole Hong Kong property market cycle to turn, not just one segment.'' The surge in Hong Kong's home prices in the past 12 months has been led by the luxury end of the market.

New World's profit for the six months through December surged more than fourfold to HK$1.13 billion ($145 million) on a surge in real estate sales, the company said in March. The company, controlled by billionaire Cheng Yu-tong, also invests in hotels, retailing, transportation and telecommunication services.

Float Size

The shares of Sino may increase more in the next few days of trade than those of New World Development, because the percentage of Sino stock in public hands is smaller, said David Webb, an independent investor who declines to disclose his holdings.

The Tracker Fund, set up by Hong Kong's government to hold shares it bought in its defense of the Hong Kong dollar's peg to the U.S. dollar in 1998, will have to buy about 1 percent of entering shares and sell 1 percent of those exiting, Webb said.

``There will probably be some sort of celebratory spree,'' Webb said. ``There will be some modest effect on the companies added, and obviously a negative effect on the companies leaving the index.''

These movements will probably be repeated on June 3, the last day of trading before the changes to the index come into effect on June 6, Webb said. Sino Land shares fell 5.6 percent and New World shares declined 4.3 percent the day before they were dropped from the index in 2003.

To contact the reporters on this story: Joshua Fellman in Hong Kong at jfellman@bloomberg.net.

Last Updated: May 16, 2005 20:21 EDT