Hang Seng Indexes Co (HSIL) has proposed increasing the Hang Seng TECH Index (HSTECH) constituent stock number to 50 and introducing a “sales growth” criterion to strengthen market representation amid changes in the global technology industry, according to the stock index compiler’s consultation paper released on Monday.
“As Hong Kong’s technology sector continues to broaden, the proposed changes aim to expand technology theme coverage, refine constituent selection, and increase the number of constituents, so the index continues to represent the evolving technology landscape,” HSIL said in a press release on Monday.
The result of the consultation will be announced by the end of September, with constituent changes to take effect in December.
The two major proposed changes regarding the revamp of the local technology index gauge are aimed at introducing a two-stream selection mechanism and expanding theme coverage.
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For the first, Hong Kong’s major stock index compiler seeks to increase the number of HSTECH constituents from 30 to 50. The top 40 stocks are selected based on the market capitalization level, and the remaining 10 are picked based on revenue growth momentum.
The second proposed change is to expand the relevant technology subthemes from 16 to 24 based on the six refined main technology themes: digital platforms and solutions; artificial intelligence; advanced hardware; robotics and automation; cloud; and frontier technologies.
The frontier technology subtheme would cover aerospace and satellite technology, quantum computing, brain-computer interfaces, advanced food technology, and advanced materials.
The proposal also suggests removing the sector requirements to better accommodate the broader technology opportunity set, as technological advancements extend beyond the traditional industry classifications.
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To ensure the HSTECH is investable, the index’s eligible constituent universe will be narrowed from all main board-listed securities to constituents of the Hang Seng Composite LargeCap and MidCap Index.
HSIL said “the proposals intend to strengthen market representation and ensure HSTECH remains a broad and future-ready benchmark for Hong Kong technology stocks.”
All other HSTECH’s eligibility requirements, such as turnover requirements and innovation screening, remain unchanged.
Launched in 2020, HSTECH currently tracks the 30 largest Hong Kong-listed technology companies by market capitalization, with assets under management by investment products passively tracking the index having reached $40.4 billion as of June.
Simulations conducted by HSIL showed the weighting of the top 10 companies would drop from 70.6 percent to 66.3 percent, and the average market capitalization would decrease from HK$377 billion ($48.05 billion) to HK$252 billion. The smallest company in the index would have a market capitalization of HK$7 billion.
The 10 additional constituent stocks based on market value would be given a weighting of 9.1 percent, and the 10 new constituent shares based on sales growth would be given a weighting of 2.4 percent.
