On February 17, a significant financial event transpired within the capital market, catalyzed by 13 major fund companies, including E-Fund and Huaxia, collectively introducing a new series of ETFs tied to the Science and Technology Innovation IndexThis move has sparked a renewed enthusiasm among investors, with reports indicating that the subscription periods for these ETFs ranged from five to twelve days and most were capped at a fundraising limit of 2 billion yuanGiven these dynamics, it is anticipated that over 20 billion yuan of additional funds could flow into the STAR Market, providing a vital boost to the technology sector.
This enthusiastic uptake was exemplified on the same day when the Jianxin Fund announced that its Jianxin Shanghai Stock Exchange STAR Market Comprehensive ETF had exceeded its expected subscriptions of 2 billion by February 17, necessitating an early closure of the fundraising periodThis underscores the market's robust confidence and enthusiasm towards the Science and Technology Innovation Index ETFsStatistical evidence shows that the STAR Market has showcased impressive performance in 2024, achieving an annual growth rate of 17.79%, far outpacing the Shanghai and Shenzhen 300 Index and the ChiNext IndexThus, the concentrated launch of these Science and Technology Innovation Index ETFs is injecting renewed vitality into the development trajectory of the STAR Market.
Reflecting back on the journey of the STAR Market, since its inception in 2019, it has accumulated financing surpassing 1 trillion yuan, establishing itself as a crucial platform for fostering innovative productive forcesThe introduction of these comprehensive ETFs is providing investors with a more accessible and efficient means to participate in the STAR Market, while simultaneously bringing fresh opportunities for growth within the technology sector.
Policy and funding are waltzing together in this concerted effort, with the central bank's monetary policy acting as the conductor
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The outline of these actions comes from a monetary policy implementation report from the People’s Bank of China (PBOC), which serves as a beacon for the direction of technology finance developmentThe report notably emphasizes "technology finance" as a critical area, clearly indicating that a financial system compatible with technological innovation needs to be constructed, enhancing financial support for major national science and technology projects and technology-driven small and medium-sized enterprises.
To shift social capital towards hard technology sectors, the central bank has implemented a range of specific measuresThrough tools such as re-lending and rediscounting, financial institutions are encouraged to boost credit flows to technology enterprises while reducing their financing costsAdditionally, the central bank is actively promoting the enhancement of a multi-tiered capital market, facilitating the listing and financing of technology companies and encouraging venture capital and private equity investments into tech fields, thus broadening financing channels for tech companiesBy executing these policies, a strong foundation of funding support for technology enterprises is laid, fortifying the rise of the technology sector.
The launch of the Science and Technology Innovation Index ETFs by thirteen major fund companies, including E-Fund and Huaxia, stands out as a significant initiative within the technology financial arenaThese ETFs meticulously track the Shanghai Stock Exchange Science and Technology Innovation Index using a total market capitalization weighting methodology, encompassing various stocks from large-cap to small-cap, while nearly 97% of the STAR market capitalization is coveredThis implies that investors can access the entire STAR market with a single investment in these ETFs, sharing in the benefits of the market's growth.
Focusing on industry distribution, the Science and Technology Innovation Index ETFs especially bolster sectors such as semiconductors, artificial intelligence (AI), and biotechnology
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Semiconductors, being the cornerstone of the technology industry, play a critical role in the nation’s technological security and industrial upgradeIn recent years, China has ramped up its research and development investments in the semiconductor sector and achieved significant milestonesThe influx of funds from the Science and Technology Innovation Index ETFs will furnish semiconductor enterprises with additional resources for R&D and production, accelerating the process of attaining self-sufficiency within China’s semiconductor sector.
AI is notably one of the most promising fields today, with profound transformations occurring in lifestyles and industry operationsFrom smart homes to intelligent driving, and from health tech to educational technologies, the application scenarios for AI are continually expandingThe support from the Science and Technology Innovation Index ETFs for AI will facilitate R&D and application efforts, nurturing internationally competitive AI enterprises.
Biotechnology, on the other hand, is pivotal to public health and safety amid rising global aging trends and increasing health demandsThe sector is poised for expansive growthThe capital influx from the Science and Technology Innovation Index ETFs will provide substantial financial backing to biotech firms’ innovation and new drug development, enhancing the overall stature of China’s biotechnology industry.
Amidst market differentiation, options are being sought in core areas such as electronics, machinery, and computingIn the current landscape, the research focus of the funds has turned fervently toward the electronic, machinery, and computing sectorsIn the electronics domain, companies across semiconductor, consumer electronics, and components are drawing significant interest from fundsThis trend is driven primarily by the revival period of the global electronic industry, with repeated signs of recovery in semiconductor chips and consumer electronics, coupled with the acceleration of AI industries propelling jumps in both performance and market valuation.
For instance, in the consumer electronics sphere, the market demand is gradually turning around in line with the expansion of 5G technology and smartphone upgrades
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Companies like Apple and Huawei are continually launching new models, inciting incremental growth throughout the consumer electronics supply chainLeading firms such as Luxshare Precision and Goertek are now focal points of fund research due to their technological prowess in areas like acoustics and optics.
In the machinery sector, there is heightened attention toward automation and robotic stocksAs Industry 4.0 and smart manufacturing push forward, enterprises are increasingly demanding automated equipment to enhance production efficiency and cut costsHuichuan Technology, a leader in the automation space, has its products broadly applied across industrial robots, elevators, and electric vehicles, with market share continuously expandingOther robotic stocks such as Boke Technology and Guoji Precision Engineering gain similar interest from funds due to their advancements in core component R&D.
Benefiting from digital transformation, sectors such as computing are experiencing burgeoning growth from emerging technologies like cloud computing and big dataFund research has gravitated towards software development and IT servicesFor example, Yonyou Network, a leading enterprise management software and cloud service provider in China, has seen rapid growth in its cloud operations, effectively assisting corporate digital transformationsKingsoft Office enjoys a strong competitive position in office software, steadily increasing its market share while actively expanding into international markets, suggesting a bright future ahead.
Within institutional investments, a preference for semiconductor self-sufficiency and AI applications stands outSMIC, recognized as one of China's largest and most technologically advanced integrated circuit manufacturers, has witnessed increased holdings from institutions, including E-Fund and the Shanghai Stock Exchange STAR Market 50 ETFThis reflects a robust confidence in SMIC's future and highlights the immense importance of achieving semiconductor self-sufficiency.
In the escalating global competition in the semiconductor field, achieving self-sufficiency has become an essential national strategy
SMIC is steadily improving in producing and innovating high-end chips, ultimately advancing the development and upgrade of China's semiconductor industryThe increase in institutional holdings will further support the company's technological R&D and capacity expansion.
AI application entities are also favored by institutional investorsDespite Tom Cat facing challenges in short-term performance, confidence in its future remains strongIn Q3, Northbound trading continued to increase its holdings by nearly 19.35 million sharesSimilarly, multiple ETFs like Southern CSI 1000 ETF and Huaxia CSI 1000 ETF have increased shares, affirming growing institutional interestOver recent years, Tom Cat has been actively advancing its integration within the AI industry chain and expanding its cross-terminal applications, with core functions of its AI robot products nearing completion, positioning itself for a competitive foothold in the AI market.
Beyond Tom Cat, numerous other companies are also vigorously exploring AI technology applications and innovations. iFlytek stands out in artificial intelligence voice recognition and natural language processing, with its products penetrating education, healthcare, and finance markets widelySenseTime, as a global AI platform leader, has delivered significant results in computer vision and deep learning, providing intelligent solutions for smart security and smart citiesThese enterprises, backed by their technological strength and innovation in AI, become primary targets for institutional investments.
However, amid this dynamic environment, risks loom as wellThe valuation of certain tech stocks presents potential overvaluation concernsWhile the rapid expansion and vast potential of the tech sector incite intense enthusiasm and large influxes of capital, some tech stock valuations currently surpass reasonable limitsLike elaborate structures built on sand, their aesthetic appeal belies an underlying instability.
Certain AI and semiconductor firms, for instance, exhibit price-to-earnings ratios soaring into multiples of tens or even hundreds, although their actual profitability struggles to validate such high valuations
Should market sentiments shift or if company performances underdeliver, these overvalued tech stocks may face significant downward correctionsInvestors must stay vigilant in their pursuits of tech stocks, avoiding the sway of market enthusiasm, while delving into the fundamentals and valuation levels of enterprises to circumvent unwise investments.
The global economic landscape is also shiftingThe actions of the Federal Reserve in the United States serve as a critical bellwether for the worldwide financial marketsExpectations are growing for future interest rate cuts aimed at invigorating economic expansion, yet the timing and extent of these reductions remain highly uncertainIf these expected cuts delay, it could considerably impact the global tech stock market.
Valuations of tech stocks are closely intertwined with liquidity; any postponement in anticipated interest rate cuts would shrink the valuation framework for tech stocksShould market predictions regarding the Federal Reserve's rate adjustments go awry, investor risk preferences may wane and funds could be directed away from high-risk assets like tech stocks, opting for safer investmentsThis shift could precipitate declines in tech stock prices, indicating pressure for a global tech stock adjustmentIn 2024, US tech stocks experienced significant downturns due to similar delayed rate cut expectations, resulting in massive market capital evaporations.
For investors, it is crucial to keep an attentive eye on the Federal Reserve's monetary policy shifts and adapt strategies proactively to potential market fluctuationsFurthermore, prudent diversification to mitigate risks associated with individual assets can help secure a more stable investment portfolio.
In conclusion, the momentum building within the technology growth stocks mirrors a dual force of policy and funding, laying out an unprecedented developmental landscape for the tech sectorThirteen major fund companies rolling out the Science and Technology Innovation Index ETFs have injected over 20 billion yuan into the STAR Market, facilitating robust progress in areas like semiconductors, AI, and biomedicine
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