By Joanne Chiu

Hong Kong's flagship stock index is getting a major overhaul that will expand the number of companies it covers and give more sway to fast-growing technology stocks.

The changes to the Hang Seng Index, a key gauge of Hong Kong's $6 trillion-plus stock market, amount to one of the biggest revamps since it was launched in 1969. They also follow a period of underperformance: despite a recent rally, the index has gained only around 12% in the 12 months ended February, lagging U.S. benchmarks and the Shanghai Composite.

On Monday, Hang Seng Indexes Co. said that it would eventually broaden the index to up to 100 companies from the 55 that will be in the index as of mid-March, and that it would ensure the benchmark has a better mix of industries, reducing the outsize impact of financial companies. The move follows a consultation launched in December.

"Adding more stocks into the benchmark is always a good thing. It's going to offer a much more diversified benchmark, which is always important" to investors, said Ken Wong, a client portfolio manager at Eastspring Investments.

However, Mr. Wong noted that the Hang Seng was less widely tracked than indexes compiled by global peers like MSCI Inc. and FTSE Russell.

In another change, some companies will be allowed to join the index just three months after going public -- effectively fast-tracking inclusion for newly listed startups, which currently have to wait up to two years, depending on their size.

The index compiler will also cap any single stock at 8% of the index, down from 10% now. At the same time, it will increase the ceiling from 5% for companies with secondary listings in Hong Kong, like Chinese tech giant Alibaba Group Holding Ltd., and those with super-voting shares.

Gabriel Chan, head of investment services for Hong Kong at BNP Paribas Wealth Management, said the overhaul was an overdue improvement for investors, while the shorter waiting time would make it more appealing for companies to list in Hong Kong.

The growing popularity of new-economy companies and those catering to China's consumers has made the benchmark, which is heavily influenced by the stocks of banks, insurers and real-estate developers, less compelling to investors. Its biggest constituents by weight are Tencent Holdings Ltd., insurer AIA Group Ltd. and HSBC Holdings Plc.

The changes by the index compiler, a unit of HSBC Holdings Ltd.'s Hang Seng Bank Ltd., echo moves by Hong Kong Exchanges and Clearing Ltd., which in recent years has revamped its rules to allow Chinese tech companies with supervoting shares and unprofitable biotechnology companies to trade in Hong Kong.

Strategists at CCB International said adding more high-growth tech stocks could boost the index's overall valuation. Cliff Zhao, the bank's head of strategy, said the scope of the expansion had exceeded his expectations.

Hang Seng Indexes Co. last year launched a separate 30-stock tech index, creating a dedicated benchmark to reflect interest in Hong Kong-listed Chinese tech stocks such as Alibaba and Tencent.

The changes will start to take effect with an index rebalancing in June. The Hang Seng will have 80 constituents by mid-2022 and will ultimately expand to 100 stocks.

The compiler plans to keep no more than a quarter of Hong Kong companies as constituents in its flagship index, which is dominated by mainland Chinese businesses.

Write to Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

03-01-21 0741ET