From December 20 to 22, the “8th Global Investor Carnival 2024” hosted by Gelonghui was held in Shenzhen. At the Investment Summit, Chen Long, Deputy General Manager of the Quantification and Derivatives Investment Department of Penghua Fund, delivered a speech on the theme “100 Science and Innovation, Technology Drives the Future”. He pointed out that if a new round of bull markets can be ushered in, the direction with the greatest flexibility may be born on the Science and Technology Innovation Board.

Chen Long believes that A-shares have had a very clear pattern over the years, that is, whether it is a structured bull market or an overall bull market, they have basically followed industry trends. And every round of industry trends will give birth to a new batch of companies, and this group of new companies will often gather in a new sector.

Reviewing the past ten years, GEM is more representative and discussed more by everyone. Starting in 2009, GEM went through two major rounds of bull markets. The first round was a round of new industry trends represented by mobile internet and consumer electronics from the end of 2012 to the end of 2015. The second round of the market starts at the end of 2020 and is a new round of industry trends represented by new energy and biomedicine.

And in the next 5-10 years, industry trends will unquestionably focus on the digital economy, artificial intelligence, and next-generation information technology.

Therefore, we believe that in the future, under the new industry trend, a number of excellent companies will be born, and these companies will probably be born on the Science and Technology Innovation Board.

The following are highlights compiled by Gelonghui:

! 1

The Science and Technology Innovation Board once again welcomed favorable policies

Chen Long: The Science and Technology Innovation Board reached a high point in mid-2021, then began adjustments that took more than two years. There are two reasons for the adjustment. On the one hand, the valuation of new shares was speculated at a high level, and on the other hand, the pressure brought about by capital holdings reduction was very high.

However, the current regulatory policy is more favorable to the Science and Technology Innovation Board.

On August 24 this year, the Securities Regulatory Commission introduced a package of policies to revitalize the capital market. On the one hand, it controlled the pace of IPOs. Originally, the number of IPOs was concentrated on the Science and Technology Innovation Board, which put a lot of pressure on the stock supply of the entire Science and Technology Innovation Board.

On the other hand, restrictions have been placed on holdings reduction. The Securities Regulatory Commission imposed certain restrictions on the reduction of the majority shareholders' holdings in terms of stock prices, dividends, etc., weakening the financial power that originally drove the continuous adjustment of the entire sector.

After the introduction of this policy, basically the entire science and technology innovation board reached a phased bottom. Although the performance of the Shanghai and Shenzhen 300 was very weak, the science and technology innovation board basically did not fall below the low in late August. It can be said that the regulatory policy played a key role, stifling the momentum for further reduction in industrial capital holdings.

In addition to this, regulations also encourage listed companies to make repurchases and increase their holdings, so the repurchase amount of the Science and Technology Innovation Board has increased markedly in recent quarters.

Also, from a capital perspective, whether it is an allotted fund such as a public fund or a transactional fund participating in the Science and Technology Innovation Board through an ETF, there is a trend of continuous inflow of capital.

2

The four major advantages of Science Innovation 100

Next, I'll talk about the advantages of Science Innovation 100 from several aspects:

The first advantage is the preparation of the plan. The entire Science and Technology Innovation Board has nearly 600 stocks. The top 50 stocks make up the Science Innovation 50, and the rest are other stocks not included in the index.

As far as the overall market capitalization distribution is concerned, Science Innovation 100 will sink even further. The stock market value of Science Innovation 50 is basically above 20 billion, while the market value of Science Innovation 100 is distributed between 7 billion and 20 billion dollars. The two can complement each other in market capitalization. Therefore, Science Innovation 100 as a whole will have a certain advantage.

The second advantage is industry distribution. The science and innovation 50 industry is biased towards a single one. The largest industry in the index is the electronics industry, which accounts for 50% of the weight. Further segmentation, semiconductors in the secondary industry also account for 45% of the weight. For a broad-based index, a single industry affects its representation.

However, the distribution of the Science and Innovation 100 industry is relatively balanced, with biomedicine accounting for about 28%; the second largest industry is the electronics industry, but it is more biased towards small to medium market capitalization; the third largest industry is machinery, which mainly includes robotics, auto parts and other companies that received attention in the second half of this year.

The third advantage is growth. In the past two years, the market has paid great attention to specialized topics and directions, because this direction will receive greater policy support. Of all the broad-based indices, the most representative one is the Science Innovation 100 Index. We counted the degree of matching between constituent stocks and specialty stocks, and found that the degree of coincidence between science and innovation 100 has reached 96%, which accounts for the highest proportion of mainstream broad-based indices.

Also, judging from the overall profit growth rate, although the growth rate of the Science Innovation 100 next year may not be the highest in the broad-based index ranking, its two-year compound growth rate is far ahead.

Furthermore, from the perspective of public fund allocation, public funds prefer the constituent stocks of Science and Technology Innovation 100. In the second quarter of this year, the allocation ratio of public funds to Science Innovation 100 surpassed Science Innovation 50 for the first time. Institutions generally believe that Science and Innovation 100 is growing better.

Finally, it came down to index performance. Since 2020, the entire science and technology innovation board has gone through three major rounds of upward trends, namely April to July and August 2020, April to October 2021, and the second quarter of last year. Basically, they all occurred in the second to third quarters. It can be seen that in these three segments of the market, Science Innovation 100 all showed greater flexibility.

In the post-incident dismantling, we found that in addition to the fundamental growth factors of listed companies, it also benefited more from the style of small market capitalization and the relatively weak liquidity of the Science and Technology Innovation Board as a whole.

Since the Science and Technology Innovation Board has a trading threshold of 500,000, many individual investors will be excluded. The overall liquidity of the Science and Technology Innovation Board stock is not particularly good.

This makes it easy for stock prices to show greater flexibility once incremental capital comes in. However, this elasticity may go both ways, showing a larger increase when rising, and possibly falling more when falling.

3

How to trade based on the Science Innovation 100 Index?

Regarding constructing a trading strategy based on the Science Innovation 100 Index, we have three ideas:

The first one is a grid trading strategy. So-called grid trading can be used not only in the Science Innovation 100 Index, but also widely used in other indices.

The premise is that as long as the index oscillates in the range, the strategy of buying low and selling high can obtain relatively steady returns or control relatively good retracement.

The advantage is that, on the one hand, automated trading is suitable for investors who don't usually have time to observe market fluctuations; on the other hand, the strategy is suitable for polarized and downward markets, and investors can obtain a certain amount of excess income after calculation.

As for the range trend of Science and Innovation 100, overall, it is a large range-oscillation pattern, so it is also more suitable for using this grid trading strategy.

The second strategy is to rotate between Science Innovation 50 and Science Innovation Board 100.

On the one hand, a lower frequency configuration can be used. We found that both indices have phased strengths and weaknesses, and their strength and weakness will continue for a long period of time. You can look for this trend. When Science Innovation 50 is strong, it is matched with Science Innovation 50; when Science Innovation 100 is strong, participation in Science Innovation 100 is phased in.

On the other hand, a high-frequency strategy can be used. This is more suitable for short-term investors. It's more of a momentum strategy, depending on which index matches which one. We used three trading days as a time window. After overall testing, we found that trading signals were very diverse, and judging from the results, significant excess profits could also be obtained.

The third strategy is to construct a mid-term timing signal based on momentum and reversal. Generally speaking, we use trends to judge whether the current stage of Science and Technology Innovation 100 is trending upward, downward, or oscillating in a partial range.

If it is upward, this trend is grasped through this bias indicator; if it is downward, the risk is controlled by short positions. Overall, it is basically possible to grasp several large bands, and the overall retracement can be controlled well.

Risk warning: The above views, opinions and ideas are based on current market conditions and may change in the future. The index's past performance does not represent its future performance, nor does it constitute a guarantee of the fund's investment income or any investment advice. The index operates for a short period of time and does not reflect all stages of market development. Funds are risky, and investments must be made with caution.