On August 18, China’s A-shares continued their strong performance, with both markets surging on heavy trading volume. The Shanghai Composite Index closed at 3,728.03 points, up 0.85%, with a turnover of 1.1339 trillion yuan. The Shenzhen Component Index closed at 11,835.57 points, up 1.73%, with a turnover of 1.6302 trillion yuan. During the session, the Shanghai Index surpassed its 2021 peak of 3,731.69, hitting a fresh 10-year high, while the total market capitalization of A-shares exceeded 100 trillion yuan for the first time.
Nearly all sectors rose, with telecommunications and computer-related stocks leading the gains, while media stocks extended their earlier strong performance. Only the real estate sector saw a pullback.
This month, the ChiNext Index has surged nearly 12%, outperforming almost all other broad-based indices recently. Earlier, we highlighted the opportunities arising from ChiNext’s undervaluation. As market focus gradually shifts from the "barbell strategy" (large-cap value and small-micro caps) to growth stocks, ChiNext is relatively well-positioned to benefit from valuation recovery.
From a historical valuation perspective, the STAR Market remains below its historical average, retaining strong valuation appeal. In terms of sector momentum, pharmaceuticals and computing power continue to show positive trends, and the upward momentum is expected to persist. The previously underperforming new energy sector may also see further recovery amid anti-involution policies, offering significant potential. Investors are advised to keep an eye on the ChiNext 50 ETF (159375) to capture opportunities in emerging tech industries.
Additionally, the Communication ETF (515880) rose 4.26%, while the ChiNext AI ETF (159388) gained 5.34%.
Demand Side: Overseas internet and cloud companies reported higher-than-expected capital expenditures. According to Huatai Securities, the combined Q2 2025 capex of the four major North American cloud providers (Microsoft, Amazon, Meta, Google) surged 69% YoY to $87.4 billion. FactSet consensus expects 2025 capex to reach $333.8 billion (+49% YoY). A-shares segments tied to the global AI supply chain, such as optical modules and PCBs, will directly benefit. (Mentioned companies are for illustrative purposes only and do not constitute investment advice. The same applies below.)
Earnings Side: Leading optical module companies (e.g., Zhongji Innolight, Eoptolink) are expected to report H1 2025 earnings growth of 53%-87% and 328%-385% YoY, reflecting strong industry momentum. Optical modules are indispensable in AI server data center networking, and China currently dominates global market share. The strong earnings growth of these leaders underscores A-shares’ pivotal role in the global optical module supply chain.
The Communication ETF (515880) has over 40% exposure to optical modules, and combined with servers and copper connections, the three core segments account for over 60%—one of the highest weightings among mainstream AI and communication indices. The ChiNext AI ETF (159388) also includes significant optical module components. The sector (CSI Communication Equipment 931160) currently trades at a P/E of 45.4, in the 65th historical percentile. Investors may continue monitoring the Communication ETF (515880) and ChiNext AI ETF (159388).
