In the ever-evolving world of finance, today marked a significant milestone in the realm of investment funds, particularly within China's burgeoning sector known as the Science and Technology Innovation Board, or the STAR MarketA major event unfolded as twelve Exchange-Traded Funds (ETFs) based on the new STAR Composite Index were launched, signaling not only an influx of fresh capital into the A-share market but also a robust interest from various fund management companies vying for a piece of this burgeoning pieAccording to financial professionals, this move is not merely a routine launch; it embodies the ambition and strategic focus of the investment community in 2023, with brokerage services scrambling to adjust and maximize their offerings around this game-changing index.

The question naturally arises: what makes the STAR Composite Index distinct from its counterparts like the STAR 50 and STAR 100 indices? Why does there exist a need for yet another index, and is it a compelling investment choice?

To navigate these inquiries, it is paramount to delve deeper beyond the surface, as the significance of the STAR Composite Index reflects broader trends within the marketFirstly, the STAR Composite Index, officially known as the Shanghai Stock Exchange STAR Composite Index, distinguishes itself primarily by its comprehensive natureIt is designed to encapsulate the entirety of the STAR Market, unlike the 50 and 100 indices that only represent segments of it.

As of early 2025, there are approximately 585 companies listed on the STAR MarketThe STAR 50 Index is composed of the top 50 stocks in terms of market capitalization and liquidity, while the STAR 100 Index includes an additional 100 stocks selected from the remainder of the market, excluding those in the 50 IndexThis means that combined, they only cover about 150 stocks, which accounts for merely a quarter of the entire STAR MarketConsequently, numerous specialized companies characterized by their cutting-edge technologies and innovations fall outside of these indices.

In contrast, the STAR Composite Index encompasses all stocks on the STAR Market that have been listed for at least one year, excluding any 'problem stocks' which are placed under risk warnings

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Thus, as of February 12, 2025, this index comprises about 567 individual stocks, providing a much broader and more accurate reflection of the entire market's performance.

This widespread representation signifies two primary advantages: wider industry coverage and a balanced market capitalization styleThe STAR Composite Index includes not just stalwarts from traditional high-tech domains such as semiconductors and computer science, but also a variety of dynamic sectors like biotechnology, power equipment, military defense, basic chemicals, and new materialsThis diversity paints a holistic picture of the evolving landscape of new production powers in China.

Furthermore, while certain large-cap stocks might dominate the index's movements due to its market capitalization weighting structure, the inclusion of numerous mid- and small-cap stocks enhances its adaptability to changing market stylesWhether the market favors large-cap or small-cap investments, the STAR Composite Index offers a balanced approach, making it a versatile choice for investors seeking exposure in the innovation-driven economy.

Beyond comprehensiveness, the STAR Composite Index carries distinct characteristics like high beta and high growth potential, largely associated with the underlying innovative companies listed within itThese companies have been stellar performers, showcasing remarkable growth trajectoriesRecent data indicates that by the third quarter of 2024, the net profit attributable to equity holders from companies on the STAR Market reached approximately 42.9 billion yuan, with R&D expenditures hitting around 104 billion yuan—over double the net profit amountSuch substantial investment in research and development signifies a strong foundation for sustainable future growth.

Looking ahead, forecasting from financial analytics suggests that revenue growth for companies included in the STAR Composite Index may reach 13.8% by 2025, potentially expanding to 19.88% in 2026. Concurrently, projections estimate that net profit growth for these firms could hit astonishing rates of 89.82% and 38.56% over the same periods, respectively.

A key feature of this index is its responsiveness to market dynamics due to its volatility threshold, where the daily price limit for stocks—and thus the index—is set at 20%. This cap enables significant price fluctuations, leading to enhanced returns and aggressive investment strategies.

Since its benchmark inception on December 31, 2019, the STAR Composite Index has outperformed major indices like the CSI 300, demonstrating superior returns that have consistently surpassed those of both the STAR 50 and CSI 300 over various periods.

So, with all these attributes, why should investors remain keenly interested in the STAR Composite Index? As the newest heavy-hitter in the family of STAR indices, the STAR Composite Index fills a critical gap, providing much-needed insights into the overall performance of a sector earmarked to drive future growth in the A-share market

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Beyond simple numbers, this index serves as evidence of an evolving market narrative where innovation stands at the forefront.

Investors are undoubtedly attracted to this index as it encapsulates potential profitability across three notable dimensionsFirstly, a trend towards interest rate cuts has emerged, signifying a delineation in monetary policy from “prudent” to “moderately loose,” with expectations of significant rate cuts within the yearHistorical trends suggest that reduced interest rates particularly favor growth-oriented sectors like technology, providing these companies—especially smaller firms—with access to cheaper capital that fuels ambitious expansion plans.

Secondly, a clear influx of capital is being directed towards innovative sectors as part of a fundamental shift from traditional industries toward new production models driven by technologyRecent government initiatives have further encouraged funding in strategic domains—such as AI, aerospace, and renewable energies—that align strongly with the STAR Composite Index’s coverage areasRegulatory frameworks are also prompting more innovation-focused indices to emerge, creating additional bridges for long-term institutional investments into the market.

Lastly, the burgeoning wave of AI innovations cultivates an environment ripe for growth, capturing not just local but also foreign interest in Chinese tech marketsThe surge of domestic AI technologies, like DeepSeek, showcases potential for widespread applications, enhancing market sentiment toward technology-driven enterprises.

As these elements coalesce, there is a growing consensus that the STAR Composite Index embodies a strategic allocation for investors eager to harness the growth potential of China's innovative economy.

Among the ETFs launched today tracking the STAR Composite Index, one that stands out is the Tianhong STAR Composite Index ETF (subscription code: 589863). Known for their strong performance in index-related products since 2015, Tianhong Fund remains committed to scientific and tech index offerings while continuously earning high ratings for their products, with many receiving four or five stars on various evaluation platforms.

Their focus on technology—as evidenced by their diverse range of thematic funds covering sectors like electronics, AI, and computing—positions them favorably within this fast-evolving market landscape

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