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Stanley Kwan, Creator of Hang Seng Stock Index, Dies at 86

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Stanley Kwan, Creator of Hang Seng Stock Index, Dies at 86
Stanley Kwan, creator of the Hang Seng Index and author of "The Dragon and the Crown, Hong Kong Memoirs," listens during an interview in Hong Kong, on Nov. 19, 2009. Photographer: Scott Eells/Bloomberg

Jan. 6 (Bloomberg) -- Stanley Kwan, the banker whose 1969 creation, the Hang Seng Index, became a widely used gauge for the Hong Kong Stock Exchange, has died. He was 86.

He died Dec. 31 at Scarborough Grace Hospital in Toronto, according to the website of Toronto’s R.S. Kane Funeral Home. The cause was heart failure, the Toronto Star reported.

The Hang Seng Index is “the ultimate capitalist measure of Hong Kong,” Robert Nield, president of the Royal Asiatic Society’s Hong Kong branch, wrote in a foreword to Kwan’s 2008 book, “The Dragon and the Crown: Hong Kong Memoirs.”

As a banker at Hang Seng Bank Ltd. from 1962, Kwan saw his creation mirroring the growth pains of Hong Kong, with the index crashing during the 1974 world oil crisis and the 1983 impasse between China and Britain during handover talks, as well as benefiting from the opening up of the mainland. The index’s 48 members now include Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, and PetroChina Co., Asia’s biggest company by market value.

As Kwan told it in his book, the bank’s chairman, Ho Sin Hang, and general manager, Q. W. Lee, decided late in 1969 “that they needed a measure of the performance of the stock market for their own as well as their customers’ reference.” Kwan said Ho spoke of creating the “Dow Jones Industrial Average of Hong Kong.”

Setting Base Day

According to the draft notes for a speech Kwan gave in 2009 in Vancouver, the Hong Kong economy had hit “rock bottom” after riots related to the Cultural Revolution swept the city in 1967. He said some within Hang Seng Bank had questioned the plan for the index as it was “only a small Chinese bank.”

Kwan, who headed the bank’s research department, said he led a staff of seven in consulting government and university statisticians and economists.

“Stanley was willing to accept opinions and he was good at incorporating different ideas,” said Roger Luk, a former deputy chief executive officer at Hang Seng Bank who worked with Kwan for seven years. “He never gave himself all the credit for founding the Hang Seng Index. He seldom boasted about this achievement.”

For the index’s “base day” -- the normal period of trading that other days would be compared with -- Kwan and his group settled on July 31, 1964. The group chose the initial 33 companies that would be the index’s constituent stocks, as well as guidelines for replacing or adding other companies in the future. The Hang Seng Index debuted on Nov. 24, 1969.

No Lasting Fame

“In the end, the system worked well,” Kwan wrote. “By the time I retired in 1984, the number of companies listed on the Hong Kong Stock Exchange had increased to over 250, but the number of constituent stocks remained 33, and these companies still accounted for about 75 percent of total market value (based on the average for the last 12 months) and over 70 percent of total market turnover (based on the aggregate for the last 24 months).”

Kwan, who retired to Canada, said in a December 2010 interview with the Toronto Star that his role in history earned him no lasting fame.

“If I walked into the Hang Seng Bank head office today, no one would know me,” he said.

Stanley Shih Kuang Kwan was born on Jan. 10, 1925, in Hong Kong to a banking family, according to the funeral home. A survivor of the Japanese occupation of Hong Kong during World War II, he served as a wartime interpreter for U.S. troops on mainland China before starting his banking career.

Hired by Hang Seng Bank in part because he spoke both English and Chinese, Kwan was made head of research, according to the 2010 Toronto Star profile.

‘Test of Time’

“The index he created has stood the test of time,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “It has given a good indication of the performance of the Hong Kong market in general and with a number of changes implemented over the years still does.”

After Kwan’s retirement, the index climbed to a high of 16,673.27 on Aug. 7, 1997, before the Asian financial crisis sent it tumbling. The government spent HK$118 billion ($15.2 billion) buying shares in the last two weeks of August 1998, supporting the gauge.

The Hang Seng Index also fell to a 4 1/2-year low in April 2003, when the city was swept by an outbreak of the severe acute respiratory disease, an illness brought over by a Chinese visitor, underscoring the city’s increasing ties with the mainland.

The index rose to a record 31,638.22 points on Oct. 30, 2007, a year before Lehman Brothers Holdings Inc.’s collapse and the global banking crisis drove equities down. As of yesterday, the gauge was 41 percent below its peak.

Kwan’s wife, Wing Kin, predeceased him, according to the funeral home. Survivors include their two daughters.

To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net.

To contact the editor responsible for this story: Charles W. Stevens at cstevens@bloomberg.net

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