The rise of domestic AI innovators like DeepSeek has propelled the hard technology sector to the forefront of China's capital marketsAmong the first to cover the entire spectrum of the Star Market, also known as the Sci-tech Innovation Board, a specific ETF product has emergedIt aims to serve as a convenient all-in-one tool for investors, encapsulating significant attributes such as high representation, rapid growth, and substantial flexibilityThis initiative seeks to assist investors in seizing the investment opportunities ushered in by technological advancements.

Filling the Market Gap and Broadly Covering Star Market Assets

Since its inception over five years ago, the Star Market has seen a remarkable increase in the number of listed companies, growing to 585. With an expansive total market capitalization ranging from 700 million to over 400 billion yuan, it has solidified its position as a major battleground for technological innovation in ChinaHowever, previous index-related products covering the Star Market primarily focused on a select few leading firms, leaving over 200 fast-growing mid- and small-cap companies unaccounted for.

The newly launched ETF, managed by Invesco, tracks the Shanghai Stock Exchange's Comprehensive Price Index for the Star MarketIt includes all stocks on the board, excluding ST (special treatment) stocks, as well as Chinese depositary receiptsAs of mid-February, the ETF held a remarkable 567 component stocks, covering approximately 97% of the market cap, signifying a comprehensive representation of assets within the Star Market, effectively addressing the existing market gap.

A deep dive into the banking distribution within the index reveals that this comprehensive index is heavily centered on emerging production sectors, including electronics (44%), pharmaceutical biology (15%), and power equipment (10%). At the same time, there is a balanced allocation across segments such as machinery, computing, and defense industries

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This approach not only concentrates on hard technology but also effectively mitigates risks associated with over-dependence on any single sector, illustrating the diversified development landscape of Star Market companies within the hard technology realmData from Wind indicates that from late September 2024 onwards, the comprehensive index experienced a surging six-month performance of 55.28%, outpacing the Shanghai Composite Index and the CSI 300, which returned 21.75% and 22.61% respectively, showcasing a robust offensive disposition.

Policy Benefits and Upward Industry Cycles Amplifying Long-term Hard Technology Value

In the current global climate, the competition in technology has intensified, establishing domestic substitution and self-reliance as core themesThe growth trajectories of Star Market companies are anticipated to ascend, with expectations for an increase in profitability by 2025, alongside a relatively high performance elasticity.

According to Gong Lili, the Deputy General Manager of Invesco's ETF and Innovative Investment Department, predictions for 2025 showcase a revenue growth rate of 14.17% and 20% for 2025 and 2026, respectivelyMoreover, the year-on-year growth rates for net profit attributable to shareholders are expected at 93.45% and 38.64%, as reported by GF SecuritiesThese vigorous growth prospects stem from substantial investments in R&D; the median proportion of R&D expenses to revenue among ETF component stocks reached 12.5% by Q3 of 2024, positioning it favorably within its peer groupSuch sustained high levels of R&D investment in the Star Market will likely lead to even stronger profitability in the years to come.

Alongside these projections, sectors such as AI, semiconductors, and new energy technologies—key markers of China's industrial structure upgrade—have demonstrated notable investment valueFor example, the global inventory cycle has reportedly addressed nearly half its challenges, while surging demand from AI and smart automotive sectors has contributed to a resurgence in the industry

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The pharmaceutical sector, after having undergone thorough adjustments, is expected to improve due to policy optimizations and anticipated international easing trendsNew energy is transitioning from a broad-based logic towards structural upgrades and increased industry concentration, with opportunities emerging across various niche segmentsThe Invesco ETF provides a bundled investment that encapsulates leading figures and potential new stars within the technological microcosm, offering investors a strategic tool for harnessing investment opportunities in the Star Market.

Economical Fees and a Dividend Mechanism: The Strategic Timing for Investing in the Star Market via ETFs

In a broader analysis, Wind data indicates that the comprehensive index has receded by nearly 40% from its peak, suggesting ample room for growth compared to its historical highsGiven the innovative and growth-oriented nature of companies on the Star Market, experts argue that this time could present a relatively favorable entry point for investorsCoupled with improved overseas liquidity and supportive policy frameworks, the pressure on Renminbi-denominated assets might see a turning pointThis outlook, together with the current easing of domestic monetary policy constraints, enhances the attractiveness of Chinese assets on the global stage.

According to GF Securities, the proportion of foreign investment in Chinese technology stocks remains low, indicating significant room for further inflowsAs an essential component of the Chinese capital market, the Star Market is gradually drawing the attention of foreign investorsA research report by Haitong Securities suggests that investors can still look forward to favorable spring market conditions in A-shares for 2025, noting the highlighted configuration value of the hard technology sector amidst the synergies of policy, industry cycles, and liquidity.

For the everyday investor, the Star Market's high entry thresholds can be challenging; however, utilizing ETFs presents a low-entry method to engage with these companies

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