On July 4, 2022, a significant milestone in the history of Exchange-Traded Funds (ETFs) was reached when a new mechanism for trading ETFs between mainland China and Hong Kong officially commencedThe implementation of this trading connectivity opens an exciting chapter for investors, allowing them to explore investment opportunities across borders by leveraging the robust financial markets of both locations.

Over the past two and a half years, the scope of the ETF trading connectivity scheme has undergone numerous expansionsThis has resulted in a growing array of products and escalating trade volumes, which signal a vibrant development phase in this investment sectorInvestors have increasingly viewed ETFs as vital tools for diversifying their portfolios while gaining exposure to various markets.

Fast forward to January 10, 2025, when the Hong Kong Stock Exchange (HKEX) and the Shanghai and Shenzhen Stock Exchanges released the latest lists of eligible ETFs under the Northbound and Southbound Stock Connect schemes

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These lists are set to officially take effect on January 20, 2025. This fresh wave of listings represents the second substantial expansion of the ETF trading connectivity framework, following recent efforts to optimize the mechanisms between these two dynamic markets.

The concept of connectivity, in this context, refers to a technological link established between mainland trading platforms and overseas exchangesThis allows investors in mainland China to access overseas markets, while foreign investors can trade a selection of A-shares through designated channels such as the Shanghai Stock Connect and Shenzhen Stock Connect.

Simply put, ETF connectivity enables investors on both sides to trade ETFs listed on each other's exchanges, provided these are compliant with the established criteriaThis arrangement not only broadens the avenues for foreign capital to participate in mainland ETF investments but also facilitates domestic investors in utilizing Hong Kong-listed ETFs for diversified asset allocations

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However, it is crucial to note that, as of now, this trading mechanism only allows investors to engage in stock ETF transactions, with no redemption capabilities available at this stage.

Additionally, among the ETFs that have qualified for this connectivity scheme is the Huaxia Science and Technology Innovation 100 ETF (588800). This ETF is particularly noteworthy as it is one of the first funds tracking the Shanghai Stock Exchange's STAR 100 Index, signaling a burgeoning interest in innovative technology investmentsFurthermore, many analysts speculate that the year 2025 will witness more significant policy developments regarding the real estate sector in ChinaThe real estate ETF fund (515060) that made it onto the eligibility list has already garnered considerable attention in anticipation of these potential changes.

Exploring the Huaxia Science and Technology Innovation 100 ETF further, it tracks a selection of 100 stocks from the STAR Market based on criteria such as market capitalization and liquidity

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Essentially, these constituent stocks represent mid-sized companies, ranking between 51 and 150 by market capitalizationThis index, in conjunction with other indices like the STAR 50 and STAR 200, provides a comprehensive overview of various market segments and helps investors gauge the performance of tech-focused firms.

What distinguishes the STAR 100 Index from other broad-based indices is its unique emphasis on high growth, innovation, and remarkable flexibilityThis "three highs" characteristic—high-quality, high-growth, and high-resilience—positions the STAR 100 Index as an appealing investment vehicle for those keen on capitalizing on the rapid advancements in technology and related industries.

The STAR Market serves as a nurturing ground for strategic emerging industries and high-tech sectors, reflecting the index's underlying emphasis on "hard technology." This market focuses on enterprises that are essential for breakthroughs in new industries, new business models, and core technology sectors, supporting critical advancements that are pivotal for the global and regional economy.

As of December 31, 2024, an analysis of the STAR 100 Index reveals that its top five represented sectors included electronics, pharmaceutical biology, electrical equipment, computing, and mechanical equipment, underscoring the robust representation of technological advancement

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Furthermore, examining these sectors reveals a noteworthy concentration in sub-industries such as digital chip design, analog chip design, chemical formulations, semiconductor equipment, and IT services—an affirmation of the growth potential designed by these lesser-known yet high-potential firms.

With an average and median market capitalization of 17.5 billion and 13.5 billion RMB, respectively, the STAR 100 Index demonstrates a distinctly smaller market cap profile compared to major indices like the CSI 300 or the CICC A500. Consequently, this peculiarity indicates higher volatility and greater responsiveness to market dynamics, making the STAR 100 Index suitable for aggressive investment strategies, including grid trading or short-wave trading approaches.

In the sphere of the real estate sector, the Huaxia Science and Technology Innovation 100 ETF (588800) and the real estate ETF discussed earlier (515060) have attracted heightened interest recently

The underlying expectation among market participants is that significant catalytic policies aimed at stabilizing the property market will be introduced in 2025. As indicated by Dongxing Securities, the current policy landscape appears clear, with central authorities expressing a commitment to revitalizing the real estate sector.

As policies grow more proactive regarding demand-supply dynamics, core city markets are expected to witness a phase of recovery characterized by stability and gradual improvementThe trends observed suggest that this approach is centered on reducing liquidity pressures and making persistent adjustments to supply dynamics—ultimately facilitating stable property prices and a resurgence in sales activity.

Hua Fu Securities highlights the importance of industry revitalization efforts by expecting the year 2025 to revolve around stabilizing the market and effectively implementing existing policies