The Hang Seng Indexes Company has initiated a market consultation on proposed changes to the Hang Seng Tech Index. The company noted that as the technology sector in the Hong Kong stock market continues to expand, the revisions aim to broaden the index's technology theme scope and adjust the component stock selection mechanism.
A key proposal is to increase the number of index constituents from the current 30 to 50. Additionally, the consultation suggests removing the current industry requirement and revising the existing six major themes, expanding the number of sub-themes from 16 to 24. Alongside market capitalisation-based stock selection, a new criterion based on revenue growth would be introduced.
The consultation period runs until 18 September. Any resulting changes are expected to be announced at the end of September, implemented during the index review concluding on 30 September, with the related component adjustments taking effect in December. The Hang Seng Indexes Company stated that these revisions aim to align with technological advancements, maintain the index's representativeness, and further solidify its role as a comprehensive and forward-looking benchmark for Hong Kong-listed tech stocks. Final decisions will depend on the Index Advisory Committee's review of the consultation feedback.
Sub-Industry Expansion from 16 to 24
The consultation document highlights the ongoing broadening of Hong Kong's tech sector composition and the market reality that faster-growing companies often have smaller market capitalisations. It proposes expanding the index's technology theme coverage by removing the industry requirement and significantly overhauling the current six themes. The new themes would be Digital Platforms and Solutions, Artificial Intelligence, Advanced Hardware, Robotics and Automation, Cloud, and Frontier Technology, increasing the sub-themes from 16 to 24.
It is also suggested that the Tech Index's stock selection universe be set to constituents of the Hang Seng Composite LargeCap & MidCap Index. The company proposes a two-tier stock selection mechanism, increasing the number of constituents from 30 to 50. The first 40 positions would be selected based on market capitalisation ranking. For the remaining stocks not selected by market cap, the top 10 eligible candidates based on revenue growth would be chosen.
Median Market Cap to Drop from HKD 118 Billion to HKD 70 Billion
Based on the Hang Seng Indexes Company's simulation results, the weight of the current top 10 heavyweight stocks in the Tech Index would dilute from 70.6% to 66.3%. The median market capitalisation of constituents would decrease from the original HKD 118 billion to HKD 70 billion. The 10 new stocks selected by market cap would account for 9.1% of the total weight, while the 10 stocks with the fastest revenue growth would represent 2.4%. The original 30 existing constituents would hold 88.5% of the weight.
Regarding the simulated average market capitalisation for December, the 10 new constituents selected by market cap would have an average of HKD 54.1 billion, the 10 new stocks selected by revenue growth would average HKD 29.1 billion, and the original 30 constituents would average HKD 171.4 billion. Their respective revenue growth rates would be 23.4%, 82.0%, and 13.8%.
Hardware Stocks Seen Rising from 5 to 15, AI Stocks from 3 to 6
The number of constituents related to "Advanced Hardware" and "Artificial Intelligence" is projected to increase from 5 to 15 and from 3 to 6, respectively.
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