People walk past an electronic display showing the Hang Seng Index in Central, Hong Kong, on Feb 26, 2021. (ISAAC LAWRENCE / AFP)

The compiler of the Hang Seng Index defended its decision to create a quota for Hong Kong firms in the latest overhaul, saying maintaining a local presence in the city’s most widely followed stock index will continue to be important.

“We are in Hong Kong and we are talking about the Hong Kong stock market,” Anita Mo, chief executive officer of Hang Seng Indexes Co. said in a Bloomberg Television interview. “In the Hang Seng Index, we need to preserve the elements for Hong Kong.”

The Hang Seng Index will be enlarged to 80 members by mid-2022 from 55 this month. Of those, at least 20 will be Hong Kong companies. Mo, who succeeded two-decade veteran Vincent Kwan at the helm of the index compiler in September, said a company’s “business presence” in the city would help define whether it’s considered a Hong Kong firm - such as where it derives the bulk of revenues.

In the Hang Seng Index, we need to preserve the elements for Hong Kong.

Anita Mo, Chief executive officer of Hang Seng Indexes Co.

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The city’s bourse is being flooded by large-cap Chinese mainland companies, especially from the tech sector, which has made the finance-heavy Hang Seng Index look outdated. The gauge’s historical performance has been lackluster, despite a recent rally, especially against the MSCI China Index. Some US$38 billion is invested in funds that follow the Hang Seng group of indexes.

Hang Seng Indexes is a a wholly-owned subsidiary of Hang Seng Bank Ltd, which is in turn controlled by HSBC Holdings Plc.

Hong Kong has become the preferred venue for a wave of mainland megacaps to sell shares, such as Kuaishou Technology, which surged 161 percent on its debut last month. Under the overhaul, new stocks will need just three months of trading before they’re up for inclusion, regardless of market cap. That’s down from as many as two years.

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Among concerns raised, some questioned whether the move would be unfair to some mainland companies, and that the Hang Seng Index should represent the overall stock market in the city regardless of where a company generates its business, according to the consultation results.