As we navigate through the financial landscape of 2025, the market appears to be following a narrative of initial restraint before a potential surgeThe year kicked off with a dismal performance as stock indices recorded a three-day decline, culminating in yet another reminder of caution just before the Lunar New Year celebrations.

However, just as many investors began to lose faith in the traditionally robust spring trading season, an unexpected spark ignited interest once moreThe buzz surrounding DeepSeek during the festive period catalyzed activity in Hong Kong and the mainland stock markets, particularly the A-shares, which saw renewed enthusiasm.

In the aftermath, the cautious sentiment that defined the markets following the September event seemed to dissipateUnlike the broad-based market rally of previous months, this new wave was distinctly underpinned by technology stocks, drawing a clear line of excitement around innovative sectors.

The necessity for investment in technological stocks leads us to focus on the Science and Technology Innovation Board, frequently referred to as the STAR marketEstablished with the prime objective of supporting enterprises aligned with national strategies and pushing the boundaries of core technologies, this board provides a vital funding channel for high-tech firms especially those operating within 'bottleneck' industries.

A shining example of this movement is the listing of notable domestic companies, such as Haiguang Information, a leader in CPUs; SMIC, the semiconductor foundry giant; and Kingsoft Office, a prominent software entity, all of which have their roots in the STAR market.

Nonetheless, for individual investors, engagement with the STAR market is met with certain barriersFirstly, there lies a significant threshold for direct stock investmentsTo qualify for trading on this board, one must possess over two years of trading experience, alongside maintaining an average asset level exceeding 500,000 RMB over the 20 trading days preceding application.

Such stringent requirements bar many potential investors, leaving them to watch enviously from the sidelines instead of actively participating in the innovation-driven market

Advertisements

Secondly, for those inclined towards Exchange Traded Funds (ETFs), the existing indices lack comprehensive breadth.

The STAR market is currently represented by three main indices: the STAR 50, STAR 100, and STAR 200, which together cover only around 350 stocksAs of February 2025, the STAR market boasts 585 listed companies with a total market capitalization surpassing 7.7 trillion RMB.

Historically, investors have gravitated towards upstream companies—those providing essential tools and technologies—due to their predictable growth trajectoriesThe STAR 50 index previously served this purpose adequatelyHowever, the unveiling of DeepSeek has reshaped the investment landscape, expanding opportunities across midstream computing and downstream software applications.

This shift underscores a pressing need for a more inclusive STAR market index that captures a broader spectrum of the innovation sectorInterestingly, the day DeepSeek launched its first version, the Shanghai Stock Exchange and the China Securities Index Company introduced the STAR Comprehensive Index (000680), also referred to simply as the STAR IndexThis new index is already gaining traction with ETFs, including the Tianhong STAR Index ETF, which simplifies access for investors.

The STAR Comprehensive Index is designed to enable investors to capitalize on the current tech stock momentumIts composition includes all listings on the STAR market, minus ST and *ST classifications, allowing investors to benefit from a fully diversified profile rather than being confined to the larger or smaller segments.

The attributes of the STAR Index can be summarized as follows: first, its extensive coverage of constituent stocksThe index currently encompasses 566 companies, representing 97% of stocks on the STAR Market—far surpassing the previously limited coverage of the other three indices.

Second, the STAR Index provides a wider scope in terms of market capitalization representation

Advertisements

Approximately 36% of its weight is attributed to companies valued over 40 billion RMB, while smaller firms (below 10 billion RMB) make up nearly 30%. This balance indicates that the STAR Index captures not only large-cap stocks but also maintains inclusion of mid-cap and small-cap companies, embodying a 'both-and' investment philosophy.

As the STAR market continues to expand, the relevance and representativeness of the STAR Comprehensive Index are expected to increase, allowing investors to fully engage in the tech stock boom without the fear of missing out on promising companies.

Additionally, the index demonstrates strong industry representation with a diverse stock portfolioElectronics dominate the index with a 44% share, followed by sectors such as biotechnology, electrical equipment, and machineryThis broad capturing ensures that the STAR Index reflects the overall characteristics of the STAR market, unlike the STAR 50, which skewed towards semiconductor firms.

By January 2025, the largest single stock in the STAR Index claimed around 5% of the total weight, while the top ten accounted for approximately 23%, thus ensuring a significant level of diversification that reduces exposure to volatility from any single stock.

In summary, the STAR Comprehensive Index is characterized by its broad-based and diversified nature.

One might wonder, however, whether the lack of rigorous selection of individual stocks would lead the STAR Index to underperformFortunately, this is not the case.

The STAR Index has effectively adhered to the increasing emphasis on companies that distribute dividends, distinguishing itself as a total return index, where stock dividends contribute positively to its overall performanceThis is an inherent advantage over conventional price indices.

Since its inception, the STAR Index has outperformed traditional price-indexed measures by a margin of 3.48%.

When comparing the STAR Comprehensive Index with STAR 50, even against the total return version of the STAR 50, the STAR Index has surpassed it by 12.71%, underlining its robust performance over time.

This is largely attributed to the STAR Index’s inclusion of small-cap companies, augmenting its long-term performance and providing greater elasticity in its returns.

For those eager to join the technological revolution heralded by DeepSeek but uncertain about how to proceed, the Tianhong STAR Index ETF (security code: 589860; subscription code: 589863) represents a practical access point.

It is crucial to note that all investment insights provided here serve merely as guidance and do not constitute professional advice

Advertisements

Advertisements

Advertisements