As a “testing ground” for China's capital market reform, the Science and Technology Innovation Board has shouldered the mission of revitalizing the country through science and technology, and has also opened a door for investors to participate in the growth of technology enterprises. On the occasion of the first anniversary of the Science and Technology Innovation Board, on the afternoon of June 22, Huaxia Foundation specially hosted the Science and Technology Innovation Board 1st Anniversary Cloud Investment Forum, inviting professors from the Chinese Academy of Social Sciences,Tianfeng SecuritiesChief economist Liu Yuhui, assistant director of Guosheng Securities Research Institute and chief electronics analyst Zheng Zhenxiang, and Zhou Keping, senior vice president of Huaxia Fund's stock investment department, decode the current state of the Science and Technology Innovation Board, look forward to the future development trends of the Science and Technology Innovation Board, and discuss investment opportunities in the Science and Technology Innovation Board.

Zhou Keping, fund manager of the Huaxia Science and Technology Innovation Fund, believes that the launch of the Science and Technology Innovation Board has had a profound impact on the entire capital market and investors' investment system, mainly reflected in the three aspects of system innovation, institutional innovation, and opportunity innovation. He believes that the Science and Technology Innovation Board will stimulate the vitality of the capital market and increase the value of the capital market; increase the share of institutional investors and make the market more mature through survival of the fittest; it will also promote market reforms, drive up market valuations, etc.

Zhou Keping stressed that the investment changes brought about by the establishment of the Science and Technology Innovation Board mainly include: first, in the future, more outstanding companies representing the level of development of the Chinese technology industry will choose to list on A-shares; secondly, the design of the trading system of the Science and Technology Innovation Board and the establishment of the Hong Kong Stock Connect will increase the proportion of institutional investors and reduce valuation fluctuations. Objectively, it is conducive to increasing the Sharpe ratio of investment in the long term and bringing a better holding experience.

In addition, Zhou Keping reminded investors to pay attention to two types of opportunities in the Science and Technology Innovation Board: the first is to find the driving force for China's economic transformation from 10,000 US dollars to 20,000 US dollars: for example, compared to the economic transition period between Japan and South Korea, the market capitalization expansion was more obvious. Industries such as consumption upgrades, pharmaceuticals, health care, information technology, high-end manufacturing, etc., are all the main forces of the Science and Technology Innovation Board in the future. Second, enjoy the investment opportunities brought by global scientific and technological innovation. 5G will drive global technology into a new cycle of innovation: global technological innovation is basically a cycle of about 10 years. We have experienced the server mainframe era, PC era, and smartphone era. As 5G communication technology matures as the underlying technology in the future, a new technology cycle is expected to begin.

The following is a transcript of this live broadcast:

Thank you very much to Mr. Liu of Tianfeng Securities and Zhenxiang of Guosheng Securities for their wonderful sharing. Mr. Liu made a long-term analysis of the positioning of the Science and Technology Innovation Board from the macro perspective, and Zhenxiang gave a good outlook on the future development of China's electronics industry.

The Science and Technology Innovation Board was officially launched last year. As one of the first fund companies to participate in the Science and Technology Innovation Board, Huaxia Fund participated in the issuance of science and technology innovation themed funds and the successive listing of shares on the Science and Technology Innovation Board. Here, I would like to share with you the impact of the establishment of the entire Science and Technology Innovation Board over the past year on investment in the technology industry, as well as our prospects for future investment in the technology industry.

I think the launch of the Science and Technology Innovation Board has had a profound impact on the entire capital market, including the investors' investment system. It is mainly reflected in three aspects:

First, system innovation

The system innovation I am talking about is that the historical background of the establishment of the entire Science and Technology Innovation Board fits very well with the nodes of China's economic transformation as a whole. There may be a great background of the times and opportunities of the times here.

Second, institutional innovation

When the Science and Technology Innovation Board was launched, along with a series of new systems taking the lead in the entire capital market, including the registration system, liberalization of ups and downs, after-market transactions, etc., I believe that the innovation of these systems is beneficial to improving the efficiency of the entire capital market, including the efficiency of investment and financing resource allocation. Now, some systems on the Science and Technology Innovation Board are gradually maturing, and may even advance to the GEM board, and may even advance to the small to medium board and main board in the future. We believe that these system innovations are actually one step closer to integrating the entire Chinese capital market with the international community. Not only will they invest in the entire technology industry, but they will have a long-term impact on the investment behavior of the entire institutional investors in the future.

Third, when it comes to investment opportunities, the launch of the entire Science and Technology Innovation Board is a great opportunity for investors. Simply put, it gave us more choices, had more better and better corporate targets, and provided investors with more choices to build better portfolio management.

I. Systemic innovation behind the Science and Technology Innovation Board

The development of the capital market is actually essentially a reflection of the overall economic development. Starting in the 90s of the last century, China's capital market has basically gone through three periods. These three periods are also basically a path of continuous development, upgrading, and transformation of the entire Chinese economy.

From the advent of the capital market in the 1990s, during the early stages of industrialization and urbanization, a series of companies represented by the main boards of the Shanghai Stock Exchange and the Shenzhen Stock Exchange became the darlings of the times, including industries represented by home appliances, automobiles, or real estate companies at the time, which promoted the prosperity of the entire era.

After joining the WTO in 2001, China's urbanization entered the middle stage, and real estate and export-related companies experienced rapid growth. At that time, the opportunities of the times, such as small and medium enterprises and GEM, appeared, and many companies also rose from a market capitalization of hundreds of millions or billions to a market capitalization of hundreds of billions of dollars.

From the 2010s to the 2020s, including later, the Science and Technology Innovation Board basically represented the third stage of China's economic transformation and development. At this stage where China's per capita GDP ranges from 10,000 US dollars to 20,000 US dollars, more and more capital is migrating and developing into industries with higher technical content. The marginal utility brought about by capital investment is constantly decreasing, and improvements in technology and efficiency may become the main theme of our investment in the future, and the timely launch of the Science and Technology Innovation Board fits the background of this era. The operation of the Science and Technology Innovation Board over the past year also showed this very well. I believe the future will definitely be reflected more and more in the context of this era.

China's scientific and technological innovation is a process from the big in the past to the greatness of the future, from big and complete to strong and refined. In the past, China's economic development was probably in the early stages of urbanization, and experienced stages of capital accumulation, labor accumulation, demographic dividends, and market dividends. China's later development may have been represented by improvements in efficiency and per capita levels, and scientific and technological innovation became the main theme. A large manufacturing industry was born in the past, and in the future, many stronger, larger, and more technologically advanced companies will emerge in the pharmaceutical, communications, high-end manufacturing, computer, and electronics industries. This is our greatest opportunity of the times.

Under the opportunities of this era, the Science and Technology Innovation Board was launched in due course. After about a year of improvement, it has basically completed its positioning:

First, the Science and Technology Innovation Board is the main battleground for the country's future economy. In particular, it has assumed the position of the main battleground for the new economy and the transition economy.

Second, the Science and Technology Innovation Board undertakes a large resource allocation function for us to catch up with the world's cutting-edge economies.

Third, from the perspective of the country as a whole, one of the important needs carried by the country's economic transformation is to increase the country's scientific and technological content. This is also our entire capital market, the entire financial industry, and the financial services industry's greatest support for the technology industry. It is also an investment opportunity we can enjoy as investors, and it also has a certain sense of mission for the times.

We believe that the launch of the Science and Technology Innovation Board and the development of science and technology innovation board companies will bring great opportunities in the era of scientific and technological innovation to China. High investment can receive more support in the capital market, and the capital market can also have healthy interaction and positive feedback with the high investment of technology companies. The technology sector will catch up faster and faster. At the same time, after catching up, they will also enjoy very fast excess profits.

The launch of the Science and Technology Innovation Board is also of great help to the multi-level capital market, and is very conducive to enhancing the long-term investment value of the capital market. On the one hand, it is the institutional innovation of the Science and Technology Innovation Board; on the other hand, the Science and Technology Innovation Board will attract more outstanding companies to go public and investors to intervene. I believe it will gradually improve the quality of the entire listed company, and at the same time reform some of the previous problems will be carried out in this test field through market-based methods. Once this reform is mature, it will definitely be implemented in more sectors. Now GEM is already learning some of the practices and methods of the Science and Technology Innovation Board, including new systems such as the registration system and liberalization of rising and falling rates, all of which will have a long-term impact on later capital markets.

II. The Science and Technology Innovation Board on Institutional Innovation

How does the Science and Technology Innovation Board influence our investment behavior and investment restrictions in terms of institutional innovation?

First, the Science and Technology Innovation Board implemented a registration system for the first time. First, the registration system can greatly accelerate the supply of excellent listed companies; second, information disclosure under the registration system is even more important. Previously, we may still have a certain gap with foreign capital markets in terms of information disclosure. The entire capital market information disclosure has been getting better and better in the past two years, including some inquiries, feedback, annual report disclosure, quarterly report disclosure, and disclosure of operating data/operating conditions. These are all getting better and faster during approval. Recently, SMIC set the fastest listing record. Excellent companies like SMIC, which are also companies in need of major national strategic innovation, can quickly gain recognition from the capital market and land on the Science and Technology Innovation Board. We think this shows great institutional flexibility and advantages.

The registration system has been the general trend in the long run. As investors, we need to get used to this new method. Under a large amount of new supply, we also need to put in more effort to do more screening to select better and excellent companies.

Second, all companies listed on the Science and Technology Innovation Board have made new regulations on the threshold for listing. Previously, the main board and GEM all used conditions such as two-year profit and three-year profit as a hard threshold for listing. Today's science and technology innovation board companies have made more optimizations.

Listing thresholds are becoming more and more diverse. Profit is no longer the only standard, but more consideration is given to science and innovation content, including not only profit, but also revenue, cash flow, R&D expenses, the science and innovation content of the main business, and even future product lines, pipelines, and management background, which may become more and more important. In the past 20 years, one of the major heartaches of Chinese technology investors is that many excellent companies have gone public on the US NASDAQ or Hong Kong stocks, and we haven't shared the investment opportunities that grew rapidly in the early days.

For science and technology innovation companies, profits may be on the back, and investment may be on the front. Seeing more flexible listing thresholds, in fact, excellent companies have more options. More outstanding companies will land on A-shares and the Science and Technology Innovation Board, and A-shares will more and more clearly reflect the development trend of China's new economy. At the same time, it is also becoming more and more marketable in terms of pricing; it is not sold at the same price as before. At the same time, the first-day rise and fall rate was also liberalized, allowing us to participate more and earlier in the investment process.

Third, more reasonable arrangements have been made for the entire trading system.

First, arrangements have been made for investors' suitability. Because the Science and Technology Innovation Board itself is highly technical and has strict professional requirements for investors, the appropriateness requirements for investors are made here, which will further encourage individual investors to participate through institutions and funds, and will also curb speculation in this market and reduce volatility.

The second is to relax the limit on rise and fall, and there is no limit on the rise and fall rate during the first five trading days. I believe that the price discovery mechanism of more outstanding science and technology innovation board companies will be more clear and flexible after listing, and we can also participate in the science and technology innovation board investment earlier. More investors will enjoy the positive investment opportunities of the science and technology innovation board, and at the same time expand the rise and fall rate. On the surface, it seems that the volatility of the entire market has increased, but in reality, liberalizing the fluctuation rate of the main board is useless. Objectively, it will definitely reduce the volatility of the entire market in the long term.

Third, the Science and Technology Innovation Board is more in line with the international community in terms of the overall transaction system and review system. For example, in comparison with the Hong Kong and US systems, it is infinitely close to mature capital markets in terms of listing transactions, listing and issuance, and pricing systems. Other than T+1, which has not changed, basically everything else is already infinitely close to mature capital markets. I also heard that the Science and Technology Innovation Board is studying T+0 liberalization. Such a trading system is in line with the global capital market, which is conducive to attracting more global investors to participate in the development and construction of China's capital market. Under such circumstances, the entire capital market is becoming more and more internationalized, and there will be more and more capital allocated to A-shares in the Chinese equity market. Objectively, it is beneficial for us to improve the efficiency of resource allocation, and also to increase the valuation of the entire market. Investors can also enjoy a better return on investment.

Under these circumstances, the Science and Technology Innovation Board has had a profound impact on the entire capital market.

First, it has boosted the strategic development of innovative countries and strengthened our country's strategic goal of increasing the proportion of direct financing. Direct financing naturally supports scientific and technological innovation enterprises. Earlier, Mr. Liu also mentioned that traditional credit channels focus more on capital protection and risk considerations, but the scientific and technological innovation industry is relatively early and is characterized by high risk, high investment, and high return, so the launch of the Science and Technology Innovation Board has greatly helped the development and transformation of the entire innovative national strategy.

Second, it is very helpful in improving the entire capital market system. The trial of a multi-level capital market system, and at the same time, the capital market metabolism has given us more excellent choices, eliminating some companies with poor old economic structures, and entering this market, so that investors can enjoy the fruits of China's economic transformation and economic development even more.

With the implementation of the Science and Technology Innovation Board, whether it is the trading system, the distribution system, or the threshold for investors to adapt, after all of these are completed, the proportion of institutional investors will rise, and the survival of the fittest market will become more mature. Under the market-based mechanism, along with the subsequent registration system and delisting mechanism, the shell value may become lower and lower, excellent companies may receive more and more valuation premiums, and China's A-shares may experience a long-term trend of US stock conversion. The valuation premiums of leading companies have been getting better and better in the past few years, and excellent companies are increasingly sought after by domestic and foreign investors. This is the trend, and the process is rapidly accelerating.

Therefore, we feel that under the impetus of the Science and Technology Innovation Board, the reform of the entire market has accelerated, the proportion of institutional investors has also increased, and the degree of internationalization has also increased, which will definitely attract more capital, whether it is global capital or domestic stock capital to be allocated to the entire A-share market. In the long run, the valuation of the entire capital market has greatly improved and helped.

Under these circumstances, the launch of the Science and Technology Innovation Board fits the background of the times, and at the same time, there are so many institutional innovations, bringing more opportunities to investors. What are the aspects of these opportunities? Mainly in some new technology fields, we can obtain long-term investment opportunities.

First, next-generation information technology;

Second, high-end equipment and materials;

Third, biomedicine;

Fourth, new energy and energy saving and environmental protection, as well as new business models and new companies providing services for these technologies.

In the past year, the quality of the first batch of companies listed on the Science and Technology Innovation Board has greatly improved, bringing us many new investment opportunities. First, take the first batch of 50 listed companies on the Science and Technology Innovation Board as an example. After statistics, the quality of the first 50 listed companies on the Science and Technology Innovation Board was basically significantly higher than that of the other A-share sectors. Judging from the scale of the business, the 50 companies basically all had revenue of more than 100 million yuan. It can be said that they have also passed the 0-1 stage. The growth capacity and revenue growth rate is very fast. More than 60% of companies are growing at a rate of more than 20%. The overall median is 31%, which is faster than the average growth rate of most A-share companies, and profitability is more obvious. Basically, the net interest rate is over 10%, the highest is above 50%. The average value is 19%, which is significantly higher than the net interest rate of companies in other sectors with current A-share stocks. (Data source: Wind, Q3 2019 to Q1 2020)

The science and innovation content is prominent in the entire science and technology innovation board. The R&D cost ratio is used as the standard for science and innovation content. The R&D expenditure rate of the highest companies has reached 30% or more, with an average of 12%. The median is 10%, which is much higher than the current single-digit R&D investment of most A-share companies. In this situation, the technological content of the entire science and technology innovation board company and the future gains and growth potential implied by current R&D are relatively high. (Data source: Wind, Q3 2019 to Q1 2020)

The performance situation seen over the past year is also obvious. Statistics show that from the third quarter of 2019 to the first quarter of 2020, the revenue and net profit growth rate of science and technology innovation board companies was significantly better than that of other sectors, showing a clear growth advantage. Basically, from the third quarter of 2019 to the first quarter of 2020, the cumulative revenue growth rates of science and technology innovation board companies were 14%, 13%, and -9% respectively. They showed strong resilience, especially during the pandemic, and had a clear advantage compared with other sectors. The net profit performance is even more obvious. The cumulative net profit growth rates of science and technology innovation board companies from the third quarter of 2019 to the first quarter of 2020 were 43%, 26%, and 21%, respectively. The average net profit growth rate of most main board, GEM, and SME A-share companies was negative under the influence of the pandemic. Because there are many hard technology companies representing the new economy, new business models, and strong demand, the Science and Technology Innovation Board has shown great resilience under the impact of the pandemic. The performance in the first quarter was extremely obvious. The intelligence of the entire science and technology innovation board company was significantly higher than that of other companies, providing us with very good and many excellent choices. (Data source: Wind, Q3 2019 to Q1 2020)

The median data is also the same. The median revenue of science and technology innovation board companies is significantly higher than that of other sectors. At the same time, the median net profit is also significantly higher than that of other sectors, showing a strong advantage in terms of ROE and net interest rate, which is higher than other sectors. The data for the past three quarters is obvious. The financial data and financial performance of this batch of 100 listed science and technology innovation board companies showed good quality. I believe that in the future, as more and more companies with higher technology content and representing the future direction of China's economic transformation go public, they will definitely improve the investment quality of the entire Science and Technology Innovation Board. (Data source: Wind, Q3 2019 to Q1 2020)

In this context, when it comes to investing, it actually provides us with a historic opportunity, which gives us better and more choices. The experience of investing in A-share technology stocks in the past ten years has not been particularly ideal. The most important reason is that the overall quality of listed companies is not high, which does not represent the true level of China's technological development. For example, the biggest technology company, Huawei, is not listed. An entire generation of excellent Internet and mobile internet companies have been listed on US or Hong Kong stocks. The most typical example is that we missed Alibaba, etc. Second, the proportion of institutional investors is low, and valuations fluctuate greatly, reducing the Sharpe ratio in the entire market. This is a problem that technology stock investment has always faced. Unlike consumption or pharmaceuticals, everyone says that the growth slope is quite certain, and the experience is very good. The valuation of technology investment has fluctuated too much over the past ten years. It is also due to the poor quality of the target and the relatively low proportion of institutional investors. The Sharp ratio is not good.

The launch of the Science and Technology Innovation Board and some opportunities for target and institutional innovation will have a good positive impact on our overall technology investment, mainly in several areas:

First, in the future, more outstanding companies representing the development of China's technology industry may choose to list on A-shares. The listing threshold has changed, the registration system, and companies with high technical content are more popular. We believe that Tencent, Huawei, and Ali will be listed on A-shares in the new era in the future.

Second, the Science and Technology Innovation Board trading system design increases the overall ratio of institutional investors, reduces overall valuation fluctuations. Objectively, it is conducive to increasing the Sharpe ratio of investment in the long term, and brings us a better holding experience.

We can better look for two types of opportunities. The first is China's economic transformation to find the driving force for the increase in GDP per capita from 10,000 US dollars to 20,000 US dollars. At the time of economic transformation in Japan and South Korea, the market capitalization expansion was relatively obvious. The industry was consumption upgrading, either medicine, health care, information technology, or high-end manufacturing. Pharmaceuticals, information technology, and high-end manufacturing are all the main forces of the Science and Technology Innovation Board in the future. Second, we can enjoy the investment opportunities brought by the new round of global scientific and technological innovation. We feel that 5G will drive the entire global scientific and technological innovation into a new cycle. Based on this cycle, communication technology, smart terminal technology, and new applications will emerge. More and more excellent companies will seize this opportunity, and we will also gain more growth models. These are all historic opportunities for technology investment as a whole. As investors, I also hope to seize this historic opportunity to create better returns for our customers and our investors.

That's all for today's introduction, thank you all!

Risk Warning: This information is service information only and does not constitute substantive advice or commitment to investors. All information in this material is as of the date of publication. If there are any changes, please refer to the latest information. The fund manager reminds investors of the “buyer's own responsibility” principle of investment. After investors make investor decisions, investors are responsible for investment risks caused by fluctuations in the fund's operating status, fund share listing transaction price, and changes in the fund's net worth. The fund company promises to manage and use fund assets based on the principles of honesty, credit, diligence and responsibility, but it does not guarantee that the fund will be profitable or that the minimum return will be guaranteed. Funds that can participate in the Science and Technology Innovation Board investment have the following special risks. Investors are requested to pay attention to the risk of liquidity, delisting risk, investment concentration risk, and risk of strategic placement of shares on the Science and Technology Innovation Board. The fund's past performance does not indicate its future performance, and the performance of other funds managed by the fund manager does not guarantee the performance of the fund industry. When investors buy a fund, they may not only share the income generated by the fund's investment according to their share of holding, but also bear the losses caused by the fund's investment. China's funds operate for a short period of time and do not reflect all stages of stock market development. When investors purchase funds, please carefully read the fund's “Fund Contract”, “Recruitment Instructions” and fund legal documents, fully understand the fund's risk-return characteristics and product characteristics, fully consider their own risk tolerance, rationally judge the market on the basis of understanding the product and service situation and listening to appropriate opinions, carefully make investment decisions based on factors such as their own investment goals, period, investment experience, asset status, etc., and independently bear investment risks. The market is risky, and you need to be careful when entering the market.