How global investors can trade China’s Star 50 Index.

China does not yet have the capability to produce the advanced chipmaking equipment it needs.


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How global investors can trade China’s Star 50 Index. 1

The Hong Kong Stock Exchange has seen the launch of its first exchange-traded fund (ETF) tracking the Shanghai-based SSE Star 50 Index. This could be a game-changer for global investors who are now able to gain exposure to China’s fast-growing tech sector.

The CSOP STAR 50 Index ETF [3109.HK] tracks the 50 largest companies on the Star 50 — a tech-heavy, Nasdaq-like index designed to promote companies innovating in areas such as IT and biomedicine. Otherwise known as the Shanghai Stock Exchange Science and Technology Innovation Board, the SSE Star 50 is made up of 222 companies, including China’s largest chipmakers, and has a total market value of over $550bn. The index features start-ups, which have found support from government policy favouring small and medium-sized businesses. 

“The STAR 50 Index is widely deemed as an index representing the performance of the rising stars in the science and technology sectors in China, and we are very glad to bring an ETF tracking this index to the market,” said Melody He, an MD at CSOP Asset Management.

“The STAR 50 Index is widely deemed as an index representing the performance of the rising stars in the science and technology sectors in China, and we are very glad to bring an ETF tracking this index to the market” – Melody He, an MD at CSOP Asset Management 

The CSOP Star 50 Index ETF started trading on 10 February 2021, with a listing price of circa HKD15 60 per unit and a management fee of 0.99%.

CSOP Asset Management was founded in 2008 and accounts for half of the top traded ETFs in Hong Kong by average daily turnover. 

What the SSE Star 50 tracks

Information technology dominates the indexaccounting for just over 63% of listings, followed by healthcare at 11% and the industrial sector at 8.66%, as of 10 February.

Montage Technology [688008], which manufactures electronic components, including memory chips and consumer electronics, is the index’s single largest stock, with an 8.7% weighting as of 10 February. Over the past 12 months, Montage Technology’s share price has dropped circa 17%, although it has managed to climb circa 12% since the start of 2021. Second place holding Semiconductor Manufacturing International’s [688981] share price has shot up over 15% since the start of the year.

China has been subject to US technology import restrictions, which have led to Beijing's step-up attempts to develop its own chip-makers and become self-sufficient in semiconductor manufacturing. While this is a long-term goal, government assistance could give these companies a more immediate domestic edge. For investors, the CSOP Star 50 Index ETF could provide exposure to this power shift towards China’s own manufacturers.

“China does not yet have the capability to produce the advanced chipmaking equipment it needs. The country is investing heavily, but success will require more than a decade-long effort,” Dan Wang, a technology analyst at Gavekal Dragonomics in Shanghai, told Bloomberg.

“China does not yet have the capability to produce the advanced chipmaking equipment it needs. The country is investing heavily, but success will require more than a decade-long effort” – Dan Wang, technology analyst at Gavekal Dragonomics 

Foreign investors have had limited access to the Star Market so far, with only a handful of China's Star Market equities having been added to the Shanghai-Hong Kong Connect program in January. The same month saw US-based Krane Fund Advisors launch its own ETF tracking the Star 50 Market — the KraneShares SSE Star Market 50 Index ETF [KSTR]. 

Where next?

The Chinese government will announce its five-year economic policy in March, with technological self-reliance already cited as a national goal. So, while China will continue to import high-end semiconductors in the short-term, over the longer-term domestic manufacturers are likely to overtake foreign imports.

For investors wanting exposure to this government-backed drive for technological independence, ETFs like the CSOP Star 50 Index ETF could be worth some consideration.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing with it before providing this material it, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinions on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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