On August 10, Hang Seng Indexes Company released a 14-page consultation paper proposing to expand the Hang Seng Tech Index's constituent stocks from 30 to 50, and elevate "Artificial Intelligence" from a sub-theme of "Intelligentization" to one of six major tech themes. The changes are expected to take effect during the index review in December 2026. Tencent Holdings (00700.HK) has fallen about 2% for two consecutive trading days, while Alibaba Group (09988.HK) dropped over 3% on August 12. Market participants worry that the weighting of existing internet giants may further decline, leading passive funds to flow out of internet companies, while the weighting of AI hardware-related stocks is expected to increase.
The elevation of the AI sector's status is a key focus of this constituent stock adjustment. Industry insiders interviewed by First Financial Reporter believe that the index component screening mechanism should incorporate more objective data criteria, drawing on the compilation methods of overseas tech indices with strong long-term performance, and include stricter requirements such as market capitalization changes, financial metrics, and market position. The "AI" theme upgrade involves Alibaba, Meituan (03690.HK), and JD.com (09618.HK), each with a weight close to 8% in the Hang Seng Tech Index. In April 2025, after the "food delivery war" began, the index was jokingly called the "Hang Seng Food Delivery Index."
On August 10, Hang Seng Indexes Company issued a consultation paper seeking market feedback on revisions to the Hang Seng Tech Index. The proposed changes aim to broaden the index's tech theme coverage, adjust the constituent stock selection mechanism, and increase the number of constituents to keep pace with tech developments and maintain index representativeness. Key proposals include: First, expanding tech theme coverage by removing industry requirements, revising the six major tech themes to Digital Platforms and Solutions, Artificial Intelligence, Advanced Hardware, Robotics and Automation, Cloud and Frontier Technology, and expanding tech sub-themes from 16 to 24. Second, introducing a grouping stock selection mechanism, where the selection scope is limited to constituents of the Hang Seng Composite LargeCap and MidCap Index, and picks are made based on "Market Cap Tier" and "Revenue Growth Tier," increasing the number of constituents from 30 to 50. Hang Seng Indexes Company stated that the relevant revisions are expected to be announced by the end of September, implemented in the index review on September 30, with final revisions subject to the Hang Seng Index Advisory Committee's decision after considering feedback. Any related constituent stock changes will take effect during the December index adjustment.
Hang Seng Indexes Company proposes a two-tier stock selection mechanism: the Market Cap Tier serves as the primary filter, selecting the top 40 eligible companies by market capitalization ranking. The Revenue Growth Tier acts as a supplement, selecting the top 10 from eligible companies not chosen by the market cap criteria, based on revenue growth over the past 12 months, to fill the remaining slots. Other eligibility requirements for the Hang Seng Tech Index, such as liquidity and innovation screening criteria, remain unchanged. The Hang Seng Tech Index was officially launched by Hang Seng Indexes Company on July 27, 2020, tracking the 30 largest tech companies listed in Hong Kong. At the end of June this year, Hong Kong's Financial Secretary Paul Chan publicly stated that some Hong Kong stock indices lag behind economic development, as tech companies' proportion of listed firms and trading volume has risen, but some indices do not fully reflect this, requiring efforts to adjust index components.
Wen Tianna, CEO of Boda Capital, analyzed for First Financial that this adjustment responds to external criticism of the "food delivery index," and will reduce the concentration of large-cap internet stock weights, incorporate more high-growth AI hardware stocks, and enhance the index's representativeness and growth attributes. He expects passive funds to rebalance accordingly, with newly included constituents facing fund reallocation. Newly added small- and mid-cap stocks may increase index volatility, but leading companies will still dominate. In the long term, the adjustment helps capture tech upgrade opportunities, while its short-term impact is limited, and individual stock performance still depends on fundamental changes.
Yu Fenghui, a consultant at the Hong Kong Stock 100 Research Center, said that expanding the Hang Seng Tech Index from 30 to 50 constituents, reducing the weight of large tech stocks, and increasing AI components fundamentally shifts the index from a "top platform economy index" to a "broad tech growth index." Adding AI-related components is an adjustment to the industry cycle, helping capture the growth dividends of the AI industry chain. Yu Fenghui expressed concern that currently, the Hong Kong market has few truly core AI technology and scale-profitable targets, and expanding to 50 constituents will inevitably include some concept-driven, unprofitable, or low-revenue companies. These high-volatility components may push up index volatility and valuation levels while dragging down overall earnings quality.
Industry insiders worry that the passive reduction in internet company weights could trigger capital outflows. Yu Fenghui believes that index expansion dilutes the concentration of some super-weight stocks, which were key stabilizers for the index floor due to their earnings certainty and buyback support. For investors, passive allocation strategies based on the Hang Seng Tech Index face reassessment, as the index is no longer a near-substitute for giants like Tencent Holdings and Alibaba. Relying on this index for long-term core holdings requires re-evaluating risk exposure. After expansion, the index company should simultaneously disclose quality metrics like weighted average revenue growth, earnings growth, and R&D investment ratios to help the market understand fundamental changes in constituents.
Wu Lixian, a strategist at Everbright Securities International, analyzed that the adjustment's main impact is increasing the sample size, likely reducing the top 10's weight proportion. If the plan is finalized, top-ranked tech stocks in the Hang Seng Tech Index may face passive fund outflows. On the other hand, new stocks mostly focus on high-growth areas like AI, differing from the previous restriction to six industries, broadening the index's industry coverage. If AI stock proportions increase, the Hang Seng Tech Index's correlation with overseas tech stocks may improve.
Li Zeming, Chief Investment Officer of Blue Water Capital Management Limited, analyzed that reduced internet company weights will lead to capital outflows, with the scale depending on the degree of weight reduction. He expects the Hang Seng Tech Index to reduce traditional internet weight and increase tech stocks like AI and hardware, enhancing index diversity. Li Zeming noted that the previous index compilation's most criticized aspect was not the number of constituents or weight changes, but the strong subjective control. Compared to overseas indices, MSCI and Nasdaq indices generally use passive inclusion mechanisms, where stocks automatically join if they meet certain market cap and liquidity thresholds, with weights calculated directly based on free float and market cap, minimizing subjective input. In contrast, many Hang Seng index changes are manually compiled, based on current preferences or research deciding which stocks to include or exclude and weight allocation. Previously, some index components were included at high stock prices, weighing on index performance. Zhipu AI (02513.HK) and MINIMAX (00100.HK) were included in the Hang Seng Tech Index in June, only to face massive lock-up expirations on July 10. In May 2008, Tencent Holdings was included in the Hang Seng Index (before the Hang Seng Tech Index was launched), regarded as a successful component adjustment. Under the leadership of Tencent Holdings and other major constituents, the Hang Seng Index hit a record high of 33,484.08 points on January 29, 2018, and Tencent Holdings gradually became the most important component of the Hang Seng Index.
A private equity professional from Guangzhou told First Financial that if the index includes other companies, it must set hard financial metrics, such as return on equity, market share of major products (to ensure industry leadership), and minimum market cap. Over the past three years, A-share companies have listed in Hong Kong, and more A-share firms will continue to do so. There should be more choices in index compilation, with scarce "A+H" targets and industry sub-sector leaders occupying more weight in index constituents.
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