On February 17, a significant advancement in China's ETF landscape took place with the launch of the first batch of 13 Science and Technology Innovation Index ETFsThis event marks a remarkable expansion in the wide-based ETF sector in the Year of the Snake, showing the eagerness of the market to embrace new investment opportunities.

The foundation for the launch was set on January 8, when the Shanghai Stock Exchange and China Securities Index Co., Ltd. announced the insight into the newly established Science and Technology Innovation Board Composite Index, abbreviated as Kexin Composite IndexThe rapid listing of these ETFs, with only a 40-day gap between the index's release and the ETF launch, echoes the expeditious debut of the first batch of the CSI A500 ETFs last OctoberThis speed is indicative of the underlying optimism and anticipation among investors and financial institutions.

Between January 20 and February 12, the Kexin Composite Index experienced an impressive increase of 8.89%, showcasing its capacity as a representative barometer of the technology sector within the stock marketThe remarkable performance during this brief period heightened the expectation from various fund companies and investors alike, who were keenly awaiting linked productsFurthermore, it is noteworthy that on the very first day of issuance, some products were oversubscribed.

China Construction Bank Fund recently reported that their open-ended index fund designed to track the Kexin Composite Index had initially set its fundraising period from February 17 to 21. However, by February 17, the total valid subscription applications had already surpassed the pre-set fundraising cap of 2 billion shares (equating to 2 billion yuan in monetary terms). To protect investors' interests and capitalize on the initial excitement, the builder of the fund opted to close the subscription early, ending the fundraising on the launch day.

This pooling of resources through the initiation of the first batch of Kexin Composite Index ETFs is anticipated to inject a substantial amount of capital into the A-share market—an estimated inflow of approximately 26 billion yuan

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The initial batch involved collaboration from 13 public fund agencies, including names like YF Tech, Huaxia, and Southern Fund among others, with eight institutions boasting total assets under management exceeding 1 trillion yuanThis involvement underscores a strong willingness from leading public fund entities to participate in this innovative financial vehicle.

The initial 13 products received approval on January 22, with seven major fund companies submitting their tracker funds for the Kexin Composite Index, while three others focused on tracking the price indexA significant development occurred with the PENGHUA Kexin Composite Index ETF, which gained approval shortly before the others on February 9, subsequently launching in coordination with the rest on February 17.

From a financial standpoint, each of these ETFs set a fundraising limit of 2 billion yuan, and their issuance timelines varied between 5 to 12 daysIf the upper limit is realized across all 13 products, it could feasibly channel 26 billion yuan into the broader A-share marketplace, making this a critical moment for market liquidity and investment potential.

In conversation with the media, representatives from Bosera Asset Management indicated that their array of index products now encompasses the majority of the indices associated with the Kexin Board, including fervent areas such as the Kexin artificial intelligence ETF and the Kexin new materials ETFThe institution intends to escalate its involvement in the Kexin venture, recognizing the rapidly evolving nature of the technology sectors driving China's market forward.

Following the successful first round of fundraising, the anticipation is already building for a second wave of ETFsSix public fund agencies, including names like Harvest Fund and Tibet Dongcai, submitted proposals for the next round on January 23. Notably, Guotai Junan Fund announced on February 14 that their Kexin Composite Index ETF product would be available to investors from February 24, merely one week after the first batch came to market.

The value proposition of the Kexin Composite Index has been a topic of constructive discourse among industry players

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Prior to its launch, the Shanghai Stock Exchange had delineated distinctions between the Kexin Composite Index and the Kexin 50 Index, indicating that the former acts as a comprehensive indicator with a market capitalization coverage close to 97%, aimed at capturing a fuller representation of the market’s breadth and depthIts counterpart, the Kexin 50 Index, is defined as a constituent index focusing on representative securities that hold a market value coverage of just 45%, primarily meant for investment functions.

Analyzing the market capitalization distribution within the Kexin Composite Index reveals a thoughtful blend of large-, medium-, and small-cap stocksThe average market value of constituent stocks stands at 11.3 billion yuan, with a median of 5.1 billion yuan, correlating closely with the overall market dynamics of the Kexin sectorConversely, the Kexin 50 Index predominantly includes larger market cap stocks, solidifying its position as a more targeted investment strategy.

The buzz surrounding tech on the market has remained fervent ever since the meteoric rise of the DeepSeek application post-Spring Festival, and the Kexin 50 Index reflected this upward momentum with four consecutive trading days of gainsThe period from February 5 to 17 witnessed an upswing of 8.61% in the Kexin 50, showcasing strong investor confidenceThe Kexin Composite Index did not lag behind either, with a reported increase of 8.31% since its initiation on January 20. Such performance ignited discussions around redefining the value of ‘technology-related assets' within the Chinese financial landscape.

As expressed by Bosera Fund, the Kexin Composite Index serves as a critical central index for the Kexin BoardIts structure exhibits a balanced distribution of industry sectors, ensuring a comprehensive reflection of overall market movementsIn this context, the index helps investors decipher trends across different technology fields, irrespective of the specific segments or the scale of the companies involved.

The growing scale of Kexin ETFs is also facilitated by favorable policy mechanisms that have optimized the market-making strategy

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Innovations surrounding options products and increased demand for investment in “hard technology” suggest that the potential influx of funds could be substantialIndustry insiders have voiced concerns regarding timing; if the launch were to be further delayed, it could lead investors into high positions, echoing signals of caution seen during the earlier rollout of the first batch of CSI A500 ETFsSince their introduction four months ago, only a minority of those funds have turned profitable, revealing the risks associated with timing in market entry.

As of February 17, the number of companies listed on the Kexin Board reached 585, boasting a cumulative market capitalization exceeding 6.82 trillion yuanIn total, the Shanghai Stock Exchange has issued 26 different Kexin indices, forming a rich ecosystem that encapsulates varied investment themes and strategiesCollectively, the value of related domestic and foreign investment products tracking these indices reaches approximately 250 billion yuan, effectively channeling resources toward developing key innovative technologies in China.

The emphasis on innovation is seen as crucial for enhancing China’s capabilities in core technological advancementsBosera Fund particularly highlighted the impressive proportion of R&D spending as a part of revenue across Kexin stocks, remarking that from 2019 to 2023, this percentage maintained an impressive average around 10%. This figure significantly outstrips other broader market indices, reflecting a proactive growth phase for the Kexin companies as they leverage high R&D expenditure alongside burgeoning industry developments.