Hang Seng Indexes Co. to expand Tech Index to 50, add revenue growth criterion

Proposed Changes to HSTECH

The Hang Seng Indexes Company has initiated a consultation to modify the Hang Seng Tech Index (HSTECH), proposing an expansion from its current 30 constituents to 50. This proposal, detailed in a consultation paper released on Monday, 11 August 2026, also introduces a new selection criterion: sales growth.

The objective is to enhance the index's ability to represent the broader technology sector in Hong Kong, moving beyond a sole reliance on market capitalisation. This adjustment reflects a recognition that a singular focus on market value may not capture the full spectrum of innovation and expansion within the technology landscape. The changes are designed to ensure the index remains relevant as the sector evolves.

Dual-Selection Framework and Rationale

Under the proposed dual-selection framework, the index would identify its top 40 constituents primarily based on market capitalisation. The remaining 10 positions, however, would be allocated using a criterion of revenue growth.

This approach addresses a stated limitation of the existing methodology, where the Hang Seng Indexes Company noted that "fast-growing technology companies often have smaller market capitalisations." The traditional market-capitalisation framework, the company explained, has historically prevented the inclusion of these high-growth entities.

By integrating sales growth, the index aims to offer exposure to companies demonstrating significant operational expansion, even if their market valuation has not yet reached the scale of established technology firms.

Refined Selection Pool and Sector Flexibility

To maintain the index's investability and focus, the selection pool for HSTECH constituents will be refined. Instead of drawing from all main board-listed securities, candidates will now be limited to companies already part of the Hang Seng Composite LargeCap & MidCap Index. This ensures a baseline level of liquidity and market presence for potential inclusions.

Furthermore, the consultation paper suggests removing existing fixed sector requirements. This adjustment acknowledges that technological innovation increasingly spans and integrates with traditional industries, making rigid sector definitions less effective for capturing the full scope of the technology sector.

The current HSTECH, launched in 2020, tracks the 30 largest Hong Kong-listed technology companies by market capitalisation, with investment products passively tracking the index holding US$40.4 billion in assets under management by June 2026.

Implications for Market Representation and Capital Flows

The proposed expansion and revised selection methodology for the Hang Seng Tech Index are set to alter its market representation. By incorporating revenue growth, the index could provide greater visibility to a segment of technology companies previously underrepresented due to their smaller market capitalisations.

This change may redirect passive investment flows, currently totalling US$40.4 billion as of June 2026, towards a more diverse set of technology firms, including those in earlier stages of rapid commercialisation.

While some might argue that adding more constituents could dilute the focus on the largest market leaders, the Hang Seng Indexes Company's rationale shows the intent is to broaden, rather than weaken, the index's reflection of the technology sector's dynamism. The shift in selection criteria demonstrates an intent to capture value creation beyond established market size.

Consequence for Investors and Companies

For investors, the HSTECH expansion implies a broader exposure to Hong Kong's technology sector, potentially including companies demonstrating significant operational expansion before achieving dominant market valuations. This could offer a different risk-reward profile for index-tracking products.

For technology companies listed in Hong Kong, particularly those with strong revenue trajectories but smaller market capitalisations, the revised criteria present an opportunity for inclusion, potentially increasing their visibility and attracting capital from passive index funds.

Decision-makers should monitor the outcome of the consultation and the subsequent implementation, which will reveal the specific companies added and their weighting within the index. The exact composition and its effect on capital allocation will become clear upon the official announcement of the revised index constituents and their effective date.