The spring festival, symbolizing new beginnings, has ushered in a wave of enthusiasm in the Chinese stock market, especially within the technology sector. This fervor, often dubbed as the "tech bull market," has caught the attention of investors and analysts alike, drawing significant capital into stocks related to robotics and artificial intelligence. As of February 20th, 2025, at the day’s closing, an impressive 26 stocks have already doubled in value, further igniting interest across the trading floor.
However, alongside this exhilarating rise, there are underlying concerns. The trading density of the "innovation index" has approached historical highs, showing an eagerness among investors reminiscent of previous bull runs. While the long-term industry trends are stable, short-term fluctuations in market sentiment could lead to significant disparities as investors reposition their portfolios.
A pivotal element of this ongoing discussion is the Science and Technology Innovation Board, commonly referred to as the STAR Market. This market has become the focal point for speculations surrounding the tech bull market. The STAR Composite Index (000680.SH) alone covers over 97% of all listed stocks on this board, filling gaps left by the more selective STAR 50, STAR 100, and STAR 200 indices that miss many small and mid-cap stocks. Recently, 13 public funds, including Penghua, E Fund, and Hua Xia, launched ETFs based on the STAR Composite Index, marshaling over 10 billion yuan into the market, which raises questions on how this capital influx will impact the current small-cap and growth-oriented technology rally.
The market witnessed a special surge on February 20th, spurred by developments in AI technology. Stocks related to AI glasses sky-rocketed, with companies like Star Technology (300256.SZ), Doctor Glasses (300622.SZ), and JMT (300868.SZ) hitting their daily caps. Humanoid robot stocks also demonstrated lively trading activity, with Sanfeng Intelligent (300276.SZ) reaching a “20cm” cap for two consecutive days and Hangzhou Changjiang (601177.SH) seeing a remarkable seven-day streak of gains.
As we progress through 2025, the Chinese AI and robotics industry continues to unfold significant milestones. The speed of advancements in robotics technology, paired with the cyclical recovery in the economy, has bolstered the technology sector’s performance amidst a gradual upward trend in major stock indices. Notably, sectors such as cloud computing, AI computing capabilities, and various AI applications have seen broad-based rallies, igniting investor interest in many sub-sectors of humanoid robotics components.
By the market's close on February 20, the STAR 200 Index and the STAR 100 Index reported year-to-date increases of 14.61% and 12.37%, ranking them as the second and third best performers among all A-share indices. The conceptual sectors of robotics and AI have captured the top spots in terms of performance, with the DeepSeek index experiencing an astounding 68.43% surge so far this year, making it the leading index in both markets. Notably, industries such as Yu Shu Robot, cloud computing, and humanoid robotics have each surpassed a 30% increase in stock value.
When examining trends over a longer span, the technology sector has consistently emerged as a top performer, especially since the "924" rally. The STAR 200 Index has soared by a remarkable 73.04% during this period, even with a maximum drawdown of around 21%, showcasing its resilience and potential compared to the Shanghai Composite Index and the Shenzhen Composite Index.
The persistent hype surrounding technology stocks has inevitably increased market trading density. According to reports from Zhongtai Securities, trading density for A-share tech indices has reached historic peaks, with the innovation index accounting for 37% of total trading volume — close to its historical high of 41% recorded in the fourth quarter of 2024. However, this figure lags behind levels seen in the Nasdaq (63%) and the Hang Seng Tech (51%). Particularly noteworthy is the valuation disparity amongst core indices, where the STAR 50 boasts a price-to-earnings ratio (TTM) of 87, positioning it within the 98th percentile of the past decade. Conversely, the growth board’s P/E ratio reflects a more modest 35, ranking within the 22nd percentile.
Specific insights from private fund managers indicate that the post-holiday market behavior diverges from the widespread surges observed last September, suggesting a more organic market momentum now driven by advancements made in China’s artificial intelligence sector. An intriguing comparison can be drawn between A-shares and Hong Kong stocks after January 13 — while technology leaders fueled A-shares, Hong Kong’s growth, excluding contributions from the Hang Seng Tech index, barely crossed the 5% threshold.
A sentiment echoed by various market analysts points out that for the technology sector to further elevate its asset valuations, an infusion of new capital is necessary. A stock market's surge often correlates with investors' increased risk appetite, and there are multiple reports speculating whether this current tech rally can lead to a re-evaluation of Chinese asset valuations.
Specific reasons for potential valuation improvements hinge on inflows from two main sources: increased foreign investment and domestic institutional allocation. When evaluating the allocation of global resources, current investments in A-shares are seemingly understated, suggesting some room for enhancement to reach historical averages. The launch of DeepSeek has bolstered the appeal of Chinese tech entities to global investors, indicating a promising horizon for the sector as a viable option for portfolio diversification. Domestic entities are also predicted to contribute significantly to this liquidity surge.
Recently, the first set of 13 STAR Composite Index ETFs reached an impressive fundraising milestone of over 10 billion yuan, greatly heightening the market's liquidity. Unlike the STAR 50, STAR 100, and STAR 200, which selectively choose their samples, the STAR Composite Index offers a holistic representation of the performance of listed companies, encompassing large, mid, and small-cap stocks while covering nearly 97% of the market capitalization within the STAR board.
Moreover, the top ten components of the STAR Composite Index show a weight of only 23.64%, a stark contrast to the 58% captured by the STAR 50. With a median market capitalization around 5.2 billion yuan, the index skews towards a broader array of small to mid-sized stocks. Since the beginning of the year, A-share styles have shifted to favor small- and growth-cap stocks, with large-cap and dividend-paying stocks lagging. This trend could mean that small-cap stocks on the STAR Market may see heightened interest when new capital flows in.
Research reports from Guotai Junan highlight a strong recognition towards establishing a primary line in technology for 2025, similar to the concept of "Internet Plus," indicating a new wave of capital spending across various industries closely linked to AI advancements will likely unfold during this accommodative macroeconomic landscape.
Finally, the rise of Yu Shu Robot and DeepSeek has engendered renewed confidence among global investors regarding the revaluation of Chinese technology assets. As macroeconomic conditions, industry trends, market liquidity, and fluctuating market dynamics come into play, it is essential for investors to keep an eye on low-valuation sectors, particularly market leaders, amidst a marked focus on the basic fundamentals which could become an 'underground main line' in this technology rally.