On October 9, the stock market experienced a significant correction, with divergent movements making headlinesThe semiconductor sector surged ahead, as evident from the performance of the Chip ETF (159995) and the Semiconductor Materials ETF (562590), which both hit their trading limitsThis marks the third consecutive session of their riseHowever, despite the exhilarating performance in these ETFs, the general mood among investors was overshadowed by declines across major indices: the Shanghai Composite Index fell by 6.62%, the Shenzhen Component dropped by 8.15%, and the ChiNext Index slumped by 10.59%. A staggering number of over 5,000 stocks recorded losses on this dayThe total transaction volume for A-shares reached an impressive 2.97 trillion yuan, indicating a contraction compared to the previous trading day, with the Shanghai market contributing 12.64 billion yuan and the Shenzhen market totaling 16.76 billion yuan.

Analyses from Huaxia Fund suggest that the market, after experiencing an initial rebound, is likely entering a period of prolonged volatilityThis phase is characterized as "divergence brings focus," where specific themes start to emerge amid active trading conditionsThe semiconductor sector, recognized for embodying both "China's core assets" and "new productive forces," is poised to take center stage in this evolving market landscape.

To understand the context behind the semiconductor sector's promising prospects, it's important to look at the current phase of China's economic cycle, which is marked by gradual strengthThe semiconductor sector is bolstered by three main drivers:

First, the sturdy fundamentals and a synchronously positive cycle both internationally and domesticallySemiconductor sales figures have reflected upward trends, with global and Chinese markets both registering ten months of year-over-year growthNotably, since the start of this year, sales have consistently shown double-digit increases, with August witnessing a historical peak in semiconductor sales

Advertisements

This upward trajectory can mainly be attributed to the recovery in supply chains, particularly in the automotive and industrial control sectors, as well as the surging demand driven by advancements in artificial intelligenceThus, the semiconductor industry is currently enjoying a robust prosperity phase.

Second, there is a strong demand for domestic production, with investment figures reaching new heightsAs artificial intelligence evolves rapidly, several new products have entered the electronics market, notably during Huawei's recent product launch eventProducts such as the Huawei Smart Screen V5Max110 and the intelligent R7 showcase augmented demand for chips.

Lastly, the semiconductor sector is deeply intertwined with economic activities and continuously benefits from favorable policiesA historical review reveals that in periods where policies shift positively, market trends tend to align with cyclical sectors closely associated with economic growthThe semiconductor sector has consistently emerged as a key beneficiary during such policy shifts; notable examples include the cyclical bull markets in 2016-2017, the robust upsurge in 2020, and the significant rebound witnessed in November 2022.

Overall, Huaxia Fund anticipates a shift from broad market rallies to a more focused, differentiated trend highlighting specific sectorsThe semiconductor industry stands to gain from the confluence of economic fundamentals and supportive policies, suggesting it may garner stronger consensus among market participants.

On a different note, new investors, who were permitted to trade following the recent holiday, are currently facing some restrictions, particularly regarding the purchase of ChiNext and STAR Market stocks, which requires them to have been invested for at least two yearsIn light of this, many novice investors are channeling their funds into related index ETFsNotably, the Chip ETF (159995) leads its category, allowing investors to access a comprehensive range of 30 A-share leading stocks within the entire semiconductor value chain

Advertisements

New investors are encouraged to consider its A-class linkage fund (008887) or C-class fund (008888).

The Semiconductor Materials ETF (562590), along with its linkage funds (A-class: 020356, C-class: 020357), closely tracks the CSI Semiconductor Materials and Equipment Index, which gives prominence to semiconductor equipment (53.1%) and semiconductor materials (22.6%), accounting for over 75% of combined weights, thereby effectively representing the index theme.

In terms of fiscal policy, there are anticipations of a major financial initiative, possibly involving trillions of yuan in new funds to be mobilized soonA press conference is set for October 12, 2024, where Finance Minister Lan Fan'an will outline strategies related to enhancing fiscal policy efforts for counter-cyclical adjustments aimed at driving high-quality economic growthThe markets are keenly observing how fiscal policies will manifest, especially following the expected release of special treasury bonds on a massive scale.

Amidst these developments, CITIC Securities has noted heightened contradictions stemming from insufficient demand within the latter half of the financial cycleThe State Council's recent announcements indicate a series of policies that have met with positive market responsesMonetary policy retains some flexibility for additional easing; meanwhile, the urgency for fiscal stimulus increases as private sector deleveraging continues to be a concern.

There’s a pressing need to regulate new debt carefully while replacing existing local debts and addressing corporate debt defaults to alleviate burdens on related entities and invigorate economic vitalityTransitioning from the traditional emphasis on infrastructure investments towards areas impacting daily life—such as education, healthcare, and social security—can bolster fiscal efficiency and effectiveness, particularly in times of economic adjustment.

Economic studies suggest that expenditures in social welfare tend to have varying effects on growth, with educational spending potentially yielding more pronounced short-term returns

Advertisements

Comparisons to developed nations illustrate paths that could enhance detail-oriented budget allocations to stimulate lasting economic growth.

Furthermore, analysts at Industrial Research stress that since late September, numerous monetary and real estate policies have been rolled out, tying closely to counter-cyclical measures aimed at expanding overall demandYear-to-date fiscal revenue in local governments remains underwhelming, suggesting that if bond scales can be adjusted, there may be relief through improved transfers or support for public welfare expenditures, easing the financial strains faced by local governments.

In the evolving economic landscape, characterized by a significant policy turnaround, there is growing optimism that continued enhancement in domestic demand policies might pave the way for a beneficial shift in market dynamics.

Within the current financially fluctuating environment, ETFs have garnered notable attention from institutional investors, especially since indices representing the ChiNext and STAR markets have yielded impressive returns of over 40% in recent weeksThe transaction volume in ETFs has surged substantially, highlighting a demand for aggressive investment strategies from market participantsBy the end of September, the total market size of ETFs in China surpassed 3 trillion yuan for the first time, reaching approximately 3.15 trillion yuan, showcasing evident investor confidence and a changing trend in capital inflows.

When compared to traditional investment mechanisms, ETFs present several compelling advantages:

1. ETFs generally offer lower expense ratios; management fees typically fall between 0.15% and 0.5%, significantly less than the 1.2% charged by many actively managed equity funds.

2. ETFs facilitate risk diversification; for retail investors, engaging in A-shares via ETFs equates to holding a diversified portfolio through a single instrument, enhancing clarity and transparency in holdings

Advertisements

Advertisements