- 2024-10-12
- News
How should ETFs be laid out?
Policies continue to support technological innovation with sustained force, the macroeconomy is gradually stabilizing and recovering, market liquidity is abundant, and the overall valuation of the ChiNext ETF remains relatively low, making it a must-not-miss allocation choice for the medium to long term.
Since the end of September, the Politburo meeting has released unusual signals for stable growth, with important ministries and commissions speaking in succession and incremental policies being introduced one after another.
Amidst the accumulation of favorable factors, Wind data statistics show that on October 8th, the first trading day after the National Day holiday, A-shares rose as expected, with a single-day transaction volume setting a new historical record. In this round of market recovery, ETFs have become an important way for investors to participate, with the scale of ETFs across the market crossing from 2 trillion yuan to 3 trillion yuan within three months. Under the promotion of favorable factors, ETFs focusing on the technology sector have become the targets of capital pursuit.
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After a sharp short-term increase, fluctuations inevitably followed. Investors who rushed into the market shifted from worrying about missing the market's surge to fearing buying at high points, while the market anticipated A-shares to transition from a rapid rise to a long-term bull market. Can the rise of A-shares continue? On October 18th, the market provided an answer. With the implementation of incremental policies and a clear push for technological development, A-shares once again saw a significant increase in trading volume, with the technology track remaining a bright spot in the market.
Looking back at the market's rebound over the past month, concepts such as semiconductors, GPUs, large funds, robots, and Huawei's HarmonyOS have become the market's sharp spears, with the market investing real money into technology fields with high growth potential. Looking forward, with policies continuing to support technological innovation, the macroeconomy gradually stabilizing and recovering, market liquidity being abundant, and the overall valuation of the ChiNext ETF remaining relatively low, it is a must-not-miss allocation choice for the medium to long term.
As the market continues to warm up, funds flow towards technology ETFs.
Reviewing the rebound of A-shares since the end of September, policy is undoubtedly an important driving force.
Confidence comes from the unexpected policy "big gift package". On September 24th, the People's Bank of China, the State Financial Regulatory Administration, and the China Securities Regulatory Commission introduced a series of incremental policies at a press conference held by the State Council Information Office, including reserve requirement ratio cuts, interest rate cuts, reduction of existing mortgage loan interest rates, capital supplementation for banks, reduction of down payment ratios, and the creation of new monetary policy tools to support the stable development of the stock market, while also indicating that they are studying the creation of a stabilization fund. Subsequently, the unusual statement at the Politburo meeting also exceeded market expectations, conveying a positive signal to the market.
Incremental policies have begun to take effect, injecting incremental funds into A-shares. On October 18th, two innovative policy tools, securities, fund, and insurance company swap facilities and stock repurchase and increase in re-lending, were officially implemented. The People's Bank of China announced that currently, 20 securities and fund companies have applied for swap facilities exceeding 200 billion yuan. Wind data shows that on that day, the total transaction volume of the two markets exceeded 2 trillion yuan, with the ChiNext index rising by nearly 8%.During the rapid market recovery process, ETFs have become an important tool for investors to rush into the market.
The scale of equity ETFs is expanding rapidly. Wind data shows that since the first product was introduced at the end of 2004, the scale of equity ETFs exceeded 1 trillion yuan in September 2022, taking nearly 18 years. This year, with the increase led by the "national team" represented by Central Huijin, the scale of equity ETFs exceeded 2 trillion yuan at the end of July. From 1 trillion to 2 trillion, it took less than two years. As the market warms up, more and more investors choose ETFs with high transparency, low fees, convenient trading, and good liquidity to enter the market. On October 8, the scale of equity ETFs across the market exceeded 3 trillion yuan. From 2 trillion to 3 trillion, equity ETFs only took less than three months.
It is worth noting that technology-themed ETFs have been sought after by the market and have led the rebound. Wind data shows that a series of indices represented by the ChiNext Index and ChiNext 50, due to their high allocation to the technology industry, have become outstanding broad-based indices in the rebound, with inflows of 141 billion yuan from September 24 to October 10, accounting for 48% of the total inflows into index funds.
Why do technology-based broad-based ETFs attract a large influx of funds? Taking the ChiNext ETF ICBC (159958) as an example, the ChiNext Index it tracks is composed of 100 large-cap and liquid stocks from the Shenzhen Stock Exchange's ChiNext board. The top ten weighted stocks are CATL, Orient Wealth, Mindray Medical, Sungrow Power Supply, InnoLight Technology, Inovance Technology, Wens Foodstuff Group, New Easy Sheng, Aier Eye Hospital, and Wens Foodstuff Group. The industries involved include power equipment, non-bank finance, pharmaceuticals and biology, electronics, and communications, with a significant large-cap growth style. (Note: The related stocks are only for the display of index components and are not recommended as individual stocks.)
Under multiple benefits, the large-cap growth style may have ushered in a favorable period. First, with the support of innovative policy tools, the capital situation of A-shares has improved, which is beneficial for the valuation repair of the growth style. Second, incremental ETF funds are on the way, and industry leaders with a clear growth style will benefit. In addition, as the Federal Reserve's interest rate cut is implemented, historical data shows that the large-cap growth style has had a significant leading performance in the past. Finally, as the stable growth policy takes effect, the market's expectations for the economic fundamentals improve, and large-cap growth may still have an advantage.
A-shares may enter the second stage, how to layout medium and long-term opportunities?
After the market has experienced sharp rises and falls and has stabilized and risen again, investors pay more attention to how to seize medium and long-term investment opportunities.
The market driven by unexpected policies, the subsequent market still needs to closely track the direction of policies. Counting the recent important policy documents and voices, encouraging technological innovation and supporting the development of new quality productive forces will be one of the important directions for future policy efforts.
According to the latest statement of the financial regulatory authorities at the 2024 Financial Street Forum, in addition to implementing incremental policies, supporting technological innovation is also a key task for the future. The central bank stated that it is necessary to improve the adaptability and precision of financial services to the adjustment of the economic structure and the dynamic balance of the economy. Promoting high-quality development is inseparable from technological innovation. Modern technological innovation has a long investment cycle, a large amount of funds, and a high degree of risk and uncertainty, with diverse financial service needs. Especially for seed and startup companies, they rely more on equity financing, and active private equity (PE) and venture capital (VC) are very important participants. Strengthen communication and cooperation with relevant departments to improve the policy system for financial support of technological innovation, focus on cultivating and supporting the financial market ecology for technological innovation, and continuously improve the ability, intensity, and level of financial support for technological innovation.
The China Securities Regulatory Commission also emphasized again the need to further support the development and growth of new quality productive forces. It will focus on supporting high-quality innovative enterprises, enhance the inclusiveness and adaptability of the system, reform and optimize the issuance and listing system, grasp the implementation of the newly released "six mergers and acquisitions", and quickly introduce a batch of typical cases. Improve the equity incentive system and effectively stimulate the spirit of entrepreneurship and the vitality of talent innovation and creation, leading and driving various advanced production factors to gather towards the development of new quality productive forces. Focus on cultivating and strengthening patient capital, comprehensively using stocks, bonds, futures, and other tools, improve the support policies for venture capital and private equity investment "raising, investing, managing, and exiting", and guide better investment in early, small, long-term, and hard technology. Enhance professional service capabilities, urge industry institutions to improve their capabilities, and better play the role of value discovery, risk pricing, transaction matching, and value-added services in promoting technological, industrial, and business model innovation, and help high-quality innovative enterprises grow and develop.More importantly, the latest advocacy such as "technology taking the lead" and "technological innovation is the only way forward" may have increased market risk appetite and confidence in the technology sector.
From the perspective of industry development trends, the technology industry has a broad space for high growth, and the ChiNext, which gathers many emerging industries and high-tech enterprises, is expected to benefit and strengthen. Taking the broad-based ETF tracking the ChiNext Index as an example, by purchasing the ChiNext ETF ICBC (159958), you can track the overall performance of the ChiNext market with one click. From historical data, the ChiNext Index, which brings together many industry leaders, has shown an overall increasing trend in revenue since its release. From 2010 to the present, its constituent stock operating income has grown from 42.7 billion yuan to 1,712.6 billion yuan, and net profit attributable to the parent company has grown from 6.9 billion yuan to 177.3 billion yuan, with a growth rate significantly leading the same period Shanghai and Shenzhen 300 Index and the CSI 500 Index. (Data source: Wind, as of 2024.10.22)
In addition to the advantage of high growth potential, the broad-based ETF tracking the ChiNext Index also has a high cost-performance ratio. Wind data shows that as of October 21, the price-to-earnings ratio (PE-TTM) of the ChiNext Index is 32.90 times, and the decile point in the past ten years is 17.61%, and the valuation is still in a lower range.
In summary, at the current point, ChiNext ETF ICBC (159958) and ICBC ChiNext ETF Connection (Class A: 005390, Class C: 005391) provide investors with a convenient investment channel, which may be able to share the growth dividends of high-tech enterprises, explore the new direction of China's economic transformation and upgrading, and enter at a lower valuation.
However, it needs to be reminded that investing in ChiNext ETF means enjoying the dividends of technological innovation while also facing the corresponding risks. Its price fluctuation limit is 20%, and the volatility is relatively large. For investors who cannot directly participate in the trading in the market, they can choose to invest in ChiNext through the connection fund. The connection fund indirectly invests in the constituent stocks of the target index by investing in the target ETF, with a position control between 90% and 95%, thereby achieving tracking of the index.
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