Hong Kong’s index compiler has proposed a significant revision to its headline technology benchmark, recommending that the Hang Seng Tech Index (HSTECH) expand from 30 to 50 constituents and add sales (revenue) growth as a formal selection criterion.
What the change would look like
Under the consultation paper released on Monday, the revised index would use a two-part selection framework:
- The top 40 stocks would be chosen by market capitalisation.
- The remaining 10 slots would be reserved for companies selected on the basis of revenue growth.
“Fast-growing technology companies often have smaller market capitalisations,” the company said. “The traditional market-cap framework prevents these high-growth companies from being included.”
| Current HSTECH | Proposed HSTECH |
|---|---|
| 30 constituents | 50 constituents |
| Selected by market cap | Top 40 by market cap; 10 by revenue growth |
| Passive investment tracking the index held about US$40.4 billion as of June | |
Why the shift matters
The move responds to a long-standing tension in index design: purely market-capitalisation‑weighted benchmarks tend to favour large, established firms and can omit rapidly expanding companies whose valuations have not yet grown to match their operational scale. By adding an explicit revenue-growth pathway, the Hang Seng Indexes Company intends to bring more high-growth, smaller-cap technology names into a mainstream, investable benchmark.
There are two practical consequences worth noting. First, inclusion in a major index typically draws capital from passively managed funds and exchange-traded products that track the benchmark. The consultation paper notes the index already underpins a sizable pool of passive assets — roughly US$40.4 billion as of June — which could shift exposure toward faster-growing Hong Kong technology firms if the proposal is adopted.
Second, the compiler proposes narrowing the selection pool to constituents of the Hang Seng Composite LargeCap & MidCap Index to preserve investability. That change is intended to ensure the companies eligible for selection meet liquidity and trading‑volume standards typical of large and mid-cap listings, even as the index seeks to add growth names.
Broader context
The Hang Seng Tech Index was launched in 2020 to capture technology-focused businesses listed in Hong Kong and has evolved alongside the region’s changing tech landscape. The consultation paper also suggests removing fixed sector classification rules from the index methodology, arguing that technological innovation is increasingly embedded across traditional industries rather than confined to narrowly defined tech sectors.
Removing sector constraints and adding growth-based selection reflect a recognition that the technology ecosystem now spans a range of businesses — from pure software and internet plays to companies in finance, healthcare and manufacturing that increasingly rely on digital platforms, data and artificial intelligence.
What’s next
The changes are proposed and subject to consultation. If implemented, they would alter how investors access Hong Kong’s tech companies through passive instruments and could influence which firms receive index-driven buying pressure. The dual-selection approach is an attempt to balance the liquidity and stability advantages of market-cap weighting with a targeted mechanism to capture genuine growth stories that a strict market-cap filter might exclude.
For market participants, the key issues during consultation are likely to include the exact revenue-growth thresholds, rebalancing frequency, and the mechanics that determine which growth companies make the cut without compromising tradability. The consultation paper frames these changes as an effort to improve market representation while keeping the index investable for institutional and retail funds.
As the debate proceeds, investors and issuers will be watching closely: index methodology changes can materially affect demand for listed stocks and the composition of passive holdings that form a growing share of global equity markets.
