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Central enterprises are an important pillar of the national economy, and science and technology is the most promising investment sector. The dual linkage between central enterprises and science and technology is the starting point for the construction of the national scientific and technological innovation system and the realization of the strategy of building a strong country in science and technology. So, how to seize the dual opportunities of central enterprises + science and technology investment? Capture investment opportunities for the country's high-quality development?

August 5,General Manager of Index and Quantitative Investment Department of Rongtong FundHe Tianxiang, fund manager Lü Han, in-depth analysisCentral enterprises’ technological innovation areasinvestment opportunities.

(Click on the picture to view the live broadcast)

Core Viewpoint

He Tianxiang:

The key words of central enterprises can be summarized into four: stable operation, high dividends, investment in scientific and technological innovation, and social responsibility value.

The science and technology sector itself has strong innovation, growth and pricing power. Therefore, in the process of improving the valuation of central enterprises, the science and technology sector will play the role of a leader or an important promoter.

The key difference between the central SOE technology sector and the dividend sector is that, although both are relatively stable, the central SOE technology sector is less affected by external factors and is more positively affected by policies and market catalysts, while the dividend sector may be more affected by external market fluctuations.

Lü Han:

When compiling the CSI Chengtong Central Enterprises Science and Technology Innovation Index, three indicators were used to conduct a comprehensive scoring, including R&D investment, patent output, and talent incentives, to select 50 constituent stocks. These indicators are consistent with both the characteristics of science and technology and the characteristics of central enterprises. When selecting constituent stocks, the dispersion of weights was also taken into consideration, and a 10% upper limit was set for the weight of individual stocks to reduce volatility and make the index more robust.

At the current point in time, it is a better choice to "go with the flow" and invest in the technology themes of central enterprises. There are three reasons for this: the stability of central enterprises under market uncertainty, the attractiveness of current valuations, and the investment certainty of following the direction of national policies.

Live broadcast

host: Hello, dear audience friends. Thank you very much for coming to our live broadcast room. On my right is one of our important guests in today's live broadcast room, he is He Tianxiang, general manager of the index and quantitative investment department of Rongtong Fund. We also have another guest who is participating in the live broadcast online because he is on a business trip. He is Lv Han, a new generation fund manager of Rongtong Fund.

The theme of our live broadcast today is "State-owned enterprises + technology, capturing double opportunities". Mr. He, why do you think we should pay attention to this topic?

He Tianxiang:I think a very important factor should be the compatibility between state-owned enterprises and technology.

host:On our big screen, you can see the Rongtong CSI Chengtong Central Enterprise Technology ETF. Today is the launch day of this product. This product contains two core elements: central enterprises and technology, which are also the focus of our discussion today.

Let's first discuss state-owned enterprises. State-owned enterprises may be unfamiliar to many people, or there may be some stereotypes that they belong to a less attractive sector. What is the reason for us to choose such a sector for investment? At the same time, I would like to ask Mr. Tianxiang, how do you view the investment opportunities represented by state-owned enterprises?

He Tianxiang:Let's first discuss the basic situation of central enterprises. Central enterprises usually give people a sense of distance, probably because they are relatively far away from our daily lives, and at the same time, the information and research on central enterprises is not sufficient. Today, I would like to introduce the situation of central enterprises from several aspects.

Central SOEs are mainly concentrated in the fields of national economy and people's livelihood, national security and science and technology, as well as some traditional cyclical and manufacturing sectors. At present, there are 97 central SOE groups under the SASAC, and there are 380 listed companies under central SOEs, with a total market value of about 20 trillion yuan. If other central SOE listed companies controlled by ministries such as the Ministry of Finance and the central government are included, the total number will exceed 400, and the market value will account for about 1/3 of the entire market. Although the number of central SOEs is small and only accounts for a small part of the number of listed companies in the entire market, they contribute about 50% of the profits and more than 50% of the dividends in the entire market. These data show that central SOEs are an undervalued sector.

The second characteristic of central enterprises is high dividends. Central enterprises have a larger weight in cyclical infrastructure, finance and real estate sectors, and a smaller weight in sectors such as consumption and medicine. However, in the technology sector, the weight of central enterprises is actually quite large, which is what we are discussing today.Central Enterprises Science and Technology Innovation IndexProvides important basis.

We also noticed that the newly listed central enterprises are mainly concentrated in the new economy and technology fields, and are no longer limited to traditional industries.

The key words of central enterprises can be summarized into four: stable operation, high dividends, investment in scientific and technological innovation, and social responsibility value.

First, stable operation:Most of the central enterprises are in mature industries with stable operations, relatively stable cash flow and profits, and relatively stable stock price performance with low volatility.

Second, high dividends:Central enterprises have the ability to pay dividends. The State-owned Assets Supervision and Administration Commission and other ministries and commissions have clear requirements and assessments on the dividends of central enterprises. Therefore, the dividend yields of central enterprises are generally high.

Third, investment in scientific and technological innovation:Central enterprises far exceed the market average in terms of R&D expenditure, growth rate, and the number and quality of patents, especially in the field of science and technology.

Fourth, social responsibility value:The State-owned Assets Supervision and Administration Commission of the State Council put forward requirements for the social responsibility of central enterprises early on. The disclosure rate and scoring level of central enterprises in ESG are much higher than the market.

Finally, let’s talk about investment opportunities in central enterprises. Because central enterprises themselves are undervalued, the State-owned Assets Supervision and Administration Commission has proposed a new assessment of central enterprises, including the assessment of market value management, so there is a lot of room for the overall valuation of central enterprises to increase. These factors provide investors with unique investment opportunities.

How to improve the valuation level of central enterprises? Specifically, we can understand this issue from the perspective of science and technology. In the central enterprise sector, the weight of technology stocks or technology innovation sectors is relatively high. At the same time, the entire market is more inclined to give higher valuations to technology stocks listed companies, because the technology field itself has strong innovation, growth and pricing power. Therefore, in the process of improving the valuation of central enterprises, the technology sector will play the role of a leader or an important promoter.

This is my summary of the basic situation of central enterprises.

Host: In fact, in recent years, the state has introduced a series of policies to promote the improvement of the quality of listed central enterprises. So what is the effect of this policy catalysis? I would like to ask Mr. Lv Han to share with us what changes have taken place in central enterprises now.

Lü Han:I will discuss the development of central enterprises by combining several key points:

First, from a fundamental perspective, the net profit growth rate of central enterprises has shown significant changes in recent years. In particular, after the State-owned Assets Supervision and Administration Commission of the State Council proposed a change in guidelines from "two constraints" to "one profit and five rates", the ROE (return on net assets) and profit growth rate of central enterprises have exceeded the market average to a certain extent.

Secondly, since last year, Rongtong Fund and its shareholder Chengtong Securities have jointly launched a series of research activities called "Focus on New Quality Productivity and Visit Central State-owned Enterprises". So far, they have visited nearly 60 central state-owned listed companies to understand their excellent practices in sustainable development, technological innovation, industrial control and safety support. Taking a company in Shandong that we recently visited as an example, I have two intuitive feelings: First, the production process in the factory is highly automated, and we can hardly see the staff; through a large central control screen similar to the one seen on TV, each production link can be monitored, risks can be promptly prompted, and there is a process-based processing mechanism.

Second, we did not smell any irritating odor in the park, which shows that they have done a lot of practice in preventing environmental pollution and practicing sustainable development, especially in the field of ESG. At the same time, they have also done a lot of work in the field of scientific and technological innovation - improving production processes to make the production process more environmentally friendly and adding high-tech content to products.

Again, back to our index -CSI Fintech Central Enterprises Technology Innovation IndexYou may have noticed that our index has a higher annualized return, lower volatility and lower valuation than similar indexes. Please refer to the following data for details.

The above are my three-point introduction to the central enterprises’ science and technology innovation index.

Host: Thank you Mr. Lv Han for sharing. We have discussed some content about state-owned enterprises, so we would like to discuss technology. In fact, technology is not unfamiliar to everyone. From early new energy, photovoltaics, semiconductors to AI, they are all hot spots emerging in the market. But if it is combined with state-owned enterprises, please let Mr. Tianxiang share with us what different characteristics it will have.

He Tianxiang:There is a fundamental difference between new scientific and technological innovation under the national system and traditional technology, which we discovered only after in-depth research.

In recent years, national scientific and technological innovation has gradually returned to the forefront, especially the new national system mentioned in the "14th Five-Year Plan". This means that national scientific and technological innovation is dominated by national power, emphasizing independent research and development, safety and control, and even developing technologies that other countries do not have. This is fundamentally different from the way of purchasing and improving foreign technology, and is also a fundamental difference between new scientific and technological innovation and traditional technology. This difference is also very obvious in investment.

Second, traditional technology may give people the impression of being track-oriented, such as semiconductors, photovoltaics, new energy and other fields, in which private enterprises have played an important role. In contrast, new technological innovation may be more comprehensive and strategic, not eager to pursue short-term profits, and its positioning is different from that of traditional technology.

Third, in addition to its important strategic significance, national scientific and technological innovation has also received significant policy support. The country has issued a large number of policies on scientific and technological innovation and has invested heavily in the field of science and technology. Public data show that during the 13th Five-Year Plan period, the R&D investment of central enterprises increased by an average of 14.5% per year, and the R&D investment in 2022 and 2023 exceeded 1 trillion yuan. In addition, the proportion of state-owned capital used to support scientific and technological innovation will reach 83% in 2024, indicating that the main investment direction of state-owned capital is scientific and technological innovation.

Specifically in terms of investment, traditional technology is more volatile, while the technology of central enterprises is relatively stable, with ROEs of 10.85%, 8.68%, 11.04%, 10.79% and 10.36% in 2019-2023 respectively (data source: Wind).

Host: We can also hear from Mr. Tianxiang's sharing just now that state-owned enterprises have indeed put a lot of effort in the field of science and technology recently. But I also want to ask a more straightforward question, can state-owned enterprises really achieve technological innovation? So I would like to ask Mr. Lv Han, what do you think about this?

Lü Han:Central enterprises should play the role of leaders and pioneers in the field of scientific and technological innovation. The State-owned Assets Supervision and Administration Commission and others have emphasized the importance of scientific and technological innovation in supporting the three major roles of state-owned enterprises. From the perspective of consumers, the technological experience of products from central enterprises and private enterprises is different. For example, consumers may feel the high technology of sweeping robots, but may not be aware of the technological innovation behind the stable power supply at home - the innovation and breakthrough of power grid companies in smart grids are the result of the efforts of academician teams and highly educated talents, which is a concrete manifestation of scientific and technological innovation of central enterprises.

Private enterprises may innovate more on the product side, such as mobile phones and sweeping robots, which are easily perceived by consumers. However, many innovative behaviors of central enterprises, especially those involving national strategies, may be difficult for ordinary consumers to directly perceive. This may lead to a certain understanding bias of people's understanding of the technological innovation of central enterprises.

Technological innovation of central enterprises is actually around us, but because people are accustomed to its existence, they may ignore its investment value and opportunities.China Chengtong Group and others have released a series of central enterprise indices, including the CSI Chengtong Central Enterprise Science and Technology Innovation Index. The compilation of this index is aimed at serving state-owned central enterprises, while exploring the long-term investment value of outstanding listed companies in the central enterprise sector, filling a gap in the market.

When assisting in compiling the CSI Chengtong Central SOEs Technological Innovation Index, we followed some basic principles, such as combining national strategies with the characteristics of central SOEs and adopting innovative compilation methods. Technological innovation is not limited to the Science and Technology Innovation Board or the Growth Enterprise Market, but exists in the entire market, including companies in mature sectors. In terms of compilation methods, we first defined the scope of technological innovation, which includes not only TMT, but also nine industries such as high-end manufacturing, communication technology, national security, artificial intelligence, and semiconductors.

We used three indicators, namely R&D investment, patent output and equity incentive, for comprehensive scoring and screened out 50 constituent stocks. These indicators are consistent with both the characteristics of science and technology and the characteristics of central enterprises. When selecting constituent stocks, we also considered the dispersion of weights and set a 10% upper limit on the weights of individual stocks to reduce volatility and make the index more robust. These are the core methods we use to compile the Central Enterprise Science and Technology Innovation Index.

host:During the compilation of our index, we encountered many difficulties and proposed many innovative points. So, regarding the three indicators you just mentioned, R&D expenditure, patent indicators and equity incentives, why did you choose these three indicators? I would also like to ask you about this.

Lü Han:I will talk about the issue of innovation measurement from the perspective of patent measurement, combined with my experience in corporate innovation research. My research areas, including academic papers and doctoral dissertations, are all centered around this topic.

In existing research, there are two main dimensions for measuring corporate innovation capabilities: one is the input side, namely R&D investment; the other is the output side, namely patent output, including invention patents, utility models and designs.

When compiling the index, we chose patents rather than R&D investment as the measurement standard for two reasons: first, R&D investment is not a standard indicator of financial statements, and there is a certain amount of room for adjustment in its disclosure process; second, although R&D investment is a necessary condition for innovation, it is not a sufficient condition. The process from R&D investment to output results and then to creating corporate profits is not only a long chain, but also a series, and its success probability is gradually reduced.

Specifically, if the success probability of each link is 90%, the success probability of the entire chain will be greatly reduced. Therefore, if only R&D investment is used as a metric, it may lead to greater volatility in the investment portfolio.

This also explains why some technology innovation indices add market capitalization quality factors to smooth fluctuations when using R&D indicators. However, this smoothing actually reduces the innovation of the index because after adding other variables, a comprehensive factor is formed instead of directly sorting by R&D investment.

Our CSI Chengtong Central Enterprises Technology Innovation Index is more pure and clear. We selected the top 50 listed companies with the strongest innovation capabilities from the central enterprises technology stock pool.Only two indicators, patent quantity and patent quality, were usedThese two indicators can scientifically and effectively measure the innovative behavior of enterprises, and they have obvious differentiation in the central enterprise technology stock pool.

Specifically, companies with higher patent quantity and quality have significantly higher future returns than companies with poorer patent performance. Therefore, we summarize as follows:

Using patents to measure corporate innovation can, firstly, more stably and objectively evaluate a company's innovative behavior.

Second, these two indicators are directly related to excess returns, namely alpha returns.In this way, we can more accurately capture companies with innovative capabilities and provide investors with investment targets with the potential for excess returns;

Third, I think the more important reason is that the SASAC has always advocated that enterprises should practice and embody values.The chain from R&D to profit for enterprises is relatively short and has a high degree of certainty. As long as the patents in our hands can be transformed into products, they can directly promote the profitability of enterprises, which is very conducive to the creation of enterprise value. This is my additional view on the importance of patents.

Next, I would like to focus on explaining equity incentives, which are actually a type of corporate governance arrangement. Equity incentives can significantly improve a company's governance level and employee incentives. What benefits can it bring? It can ensure that the company can carry out long-term innovation in a stable manner.Equity incentives are essentially a performance-binding mechanism that enables management to focus more on creating long-term value.

We found through calculations that the sample of companies that implemented equity incentives showed higher growth in the number of patents in the next one, two or three years compared to the sample of companies that did not implement equity incentives. At the same time, these companies will invest more in future R&D. Therefore, we combined these indicators and selected companies with good patent quantity and quality in history; on the other hand, through the addition of equity incentive events, including the impact of this event, our investment portfolio will also be able to demonstrate strong long-term innovation capabilities in the future.

In summary, equity incentives, as an effective corporate governance mechanism, can promote long-term and stable innovation activities of enterprises, thereby bringing continuous value growth to enterprises. Through this mechanism, our investment portfolio can ensure long-term and stable growth.

I would like to add something. I often hear people question whether central enterprises can implement equity incentives. It is generally believed that it may be difficult for central enterprises to implement equity incentives because of the involvement of state-owned assets. This statement is both right and wrong.

Indeed, it may be difficult for state-owned enterprise groups or some traditional state-owned listed companies to implement equity incentives.Among listed companies controlled by central enterprises in the science and technology sector, the State-owned Assets Supervision and Administration Commission strongly encourages the implementation of equity incentives.Since 2016, the SASAC has issued a number of policy documents to encourage central enterprises to control listed companies, especially technology companies, to implement equity incentives. This is actually to solve the problem of the relationship between performance and innovation of technology companies.

As we all know, the implementation of equity incentives has mandatory requirements for the assessment objects. For example, in the next few years, the company's profit growth, revenue growth or the market value of the enterprise needs to reach a certain improvement standard. Therefore, among listed companies that implement equity incentives, there are usually better performance and corporate growth guarantees. This solves the positive relationship from R&D to patents and then to performance growth.

We have also conducted a lot of tests. Companies that implement equity incentives will increase and improve their R&D investment and the number of patents. At the same time, these companies' net profit growth and stock price performance are also better. Therefore, both in theory and in practice, equity incentives have solved the problem of why we should use this indicator for index compilation. Equity incentives are very compatible with technology companies among central enterprises, but not so compatible with other types of companies. This provides a good tool for our index compilation.

host:I learned that these three simple indicators are not simple. Behind them are the careful consideration and hard work of the index compilation team. I saw a friend in the comment area asking if I could introduce two fund managers. Here, I would like to introduce to you that the person sitting on my right is the general manager of the index and quantitative investment department of Rongtong Fund. He has a master's degree in economics from Xiamen University, more than 16 years of working experience, and more than 9 years of investment management experience. The products he manages, such as Rongtong Shenzhen Stock Exchange 100, are very representative index products.

Mr. Lv Han, who is connected with us, is a PhD in economics, has more than 6 years of working experience and 0.8 years of fund management experience. He is a very outstanding new generation fund manager in our index and quantitative investment department. Thank you very much for your attention to the two fund managers, and hope that you can continue to support them.

Back to the point, we heard the two fund managers’ introduction to the index compilation process, which is indeed innovative and scientific. This is also true in practice.

May I ask Mr. Tianxiang, where are the specific investment opportunities?

He Tianxiang:My most important point is that there are significant differences between central enterprise technology and traditional technology, especially in the field of technological innovation. Since the past two years, we believe that the field of technology investment has ushered in a new era of national technology and central enterprise investment.

Central enterprises are regarded as the national team of technological innovation, which is the investment value we want to emphasize today. To support this view, I provide some data to explain. There are significant differences between central enterprises and traditional technology in practice. The growth of central enterprises is more stable, while the growth of traditional technology is more volatile.

We have observed some data. For example, according to Wind statistics, the consensus expected net profit growth rate of the CSI Chengtong Central Enterprises Science and Technology Innovation Index in 2024 is about 13%, which matches its historical annual profit growth rate, with an average annual growth rate of about 10%, showing its stability. In addition, an interesting phenomenon is that the annual return of the index is highly positively correlated with its annual profit growth rate, which is not common in many sectors or indices, and may even be out of sync. The positive correlation coefficient between the two is very high, reaching 0.8.This suggests that the index is suitable for long-term investment in the technology investment space and is ideal for patient capital.

Regarding technology valuation, it is generally believed that the valuation of the technology sector is very high. For example, the current valuation level of the TMT industry may be 50 times or even higher. However, the current price-to-earnings ratio (PE) of our index is only 22 times, which is a very low valuation level among all technology sectors.

The above are some of my additions to the central enterprises’ science and technology innovation index.

Host: Thank you Mr. Tianxiang for sharing. I would also like to ask Mr. Lv Han, this product is a technology-themed product. Compared with other technology indexes, what are its characteristics and differences?

Lü Han:Thank you, host. In the process of compiling the index, we referred to the compilation plans of more than 50 science and technology innovation indices already available at CSI Index Co., Ltd., and summarized several features of this science and technology theme product as follows:

First, as mentioned earlier, we invest in state-owned technology companies, which are the national team for technological innovation, and we choose targets with high and stable growth capabilities.

Second, I think it is important that our technological innovation has a high "purity". Compared with other indexes, we did not add the growth market value factor, but only used the number and quality of patents as indicators, which is in line with the sixteen-character guideline for index compilation proposed by our department, namely "distinctive features, innovative solutions, good returns, and regulatory compliance", providing investors with a clearly labeled, WYSIWYG active index investment tool.

Third, I want to talk about returns. After all, when people choose products, they often focus on historical return levels. We have also summarized: Wind data shows that as of June 30 this year, the Chengtong Central Enterprise Science and Technology Innovation Index has risen by 28.64% since the base date (2019/12/31), which is significantly better than the performance of science and technology innovation indexes such as the Science and Technology Innovation 50 (-28.79%) and the ChiNext Index (-6.28%) during the same period. In other words, in the past four and a half years, we have achieved an excess increase of nearly 60% relative to the Science and Technology Innovation 50 Index. This is a more important point.

If we take a longer-term view, we can see that in different years, our index returns are basically synchronized with market performance. When the market rises, we are able to keep up; when the market falls, due to our lower valuation and the soundness of the central enterprise's operations, our index volatility or drawdown rate is significantly lower than that of competitors. For example, in the past four and a half years, the maximum drawdown rate of our index was 36.37%, significantly lower than the 60.89% of the Science and Technology Innovation 50 Index.

Host: Got it. The past performance is indeed exciting. Of course, we also have to say that past performance does not represent future performance. But I am really curious, why can this index perform so well? I would also like to ask Mr. Tianxiang to share with us the performance attribution. Of course, we will not mention individual stocks as usual, but only some sub-sectors.

He Tianxiang:First, we look at performance. Dr. Lu has already introduced the style exposure. We calculated the factor exposure of the index and found that the index has a high positive exposure to the growth and market value factors. This is in line with expectations, because the market value exposure of technology sectors is usually high, and the overall market value of central enterprise technology is relatively large compared to traditional technology sectors, although not much larger.

In addition, the index shows interesting characteristics in terms of valuation and volatility. The low exposure to valuation and volatility indicates that the index has low volatility. Unlike the technology index, which is usually more volatile, this index shows negative volatility exposure. In terms of valuation, although the technology sector is generally considered to be highly valued, the valuation exposure level of this index is negative, which is significantly different from many other indices.

Specifically, we calculated the industry attribution decomposition, that is, the main contributors and drags on the index returns. The industries with large positive contributions include power equipment and new energy, communications, nonferrous metals, automobiles and basic chemicals. These sectors have made significant positive contributions to the index.

On the contrary, the industries with the largest negative contribution are computers and electronics, and the relative negative contribution of these two sectors is more prominent. This is significantly different from the traditional technology sector, which is mainly concentrated in the TMT (technology, media, and communications) field. These data provide us with a detailed picture of the contribution of index returns.

Host: Thank you Mr. Tianxiang for sharing your data. I would like to ask Mr. Lv Han, because investment not only depends on investment space, but also on investment timing. Do you think now is a good time to invest in technological innovation?

Lü Han:In equity investment, we also emphasize "following the trend", that is, following the direction encouraged by the state. The support of national policies can not only promote the improvement of corporate operating performance, but also make investment behavior more stable.

In response to the host's question, I think it is a better choice to invest in blue chip technology growth stocks at this point in time for the following reasons:

First, the current environment is highly uncertain. The stable operation and profit certainty of central enterprises are being re-evaluated by the market. For example, the rise in dividend products at the beginning of this year reflects the market's pursuit of certain assets. Although it has subsequently fallen due to increased crowding, it just reflects the market's pursuit of certain pricing assets.

Secondly, from a valuation perspective, the current valuation level is at a lower percentile compared to the historical percentiles of our index. Investing in these indexes at this point in time allows you to enter the market at a more comfortable position than at a high point. Even if the asset quality is excellent, an overly high valuation may affect the investment experience. At present, market valuations are at a relatively low level in the near term, which may be a good time to invest.

Third, investing in the direction encouraged by the country can enhance inner certainty, which is also confirmed by the historical performance of our index.

To sum up, I mainly emphasized three points: the robustness of central enterprises under market uncertainty, the attractiveness of current valuations, and the investment certainty of following the direction of national policies.

host:I understand. I think your point about following the trend is very good. With such a guideline, it may be easier to make investment decisions. Then I would also like to ask Mr. Tianxiang, because the overall market style is still biased towards dividends, which has been going on since last year and there is no end in sight.So at this point in time, what do you think about the future direction of the technology sector?

He Tianxiang:I'm glad you're willing to compare the dividend and technology sectors. This may reflect that the current focus is on dividends and technology, two seemingly unrelated sectors. But in fact, there is a correlation between dividends and central enterprise technology.

Why do I say this? Because both are relatively stable assets. The dividend sector itself is defensive and provides dividend protection, while the central enterprise technology sector is characterized by stable growth and is more affected by policies and events. However, the dividend sector may be more affected by external factors, especially outside of utilities and banks, coal, oil, steel, nonferrous metals, chemicals and other industries have a large weight in the dividend sector. The trends of these sectors are often affected by commodity prices or global factors.

Recently, due to the correction of these sectors, the dividend index has also seen a significant adjustment. In contrast, the characteristics of the central enterprise technology sector are different. Central enterprises themselves belong to a relatively stable sector, with relatively limited downward space and low volatility. As mentioned earlier, policy support, capital flows and various catalysts are relatively abundant in the central enterprise technology sector, making this sector neither crowded at the current point in time nor with great profit potential.

Therefore, the main difference between the central SOEs' technology sector and the dividend sector is that although both are relatively stable, the central SOEs' technology sector is less affected by external factors and is more positively affected by policies and market catalysts; while the dividend sector may be more affected by external market changes.

Host: Mr. Tianxiang, do you have anything to add?

He Tianxiang:Let me add a few words about the future development direction. First, we will continue to enrich our product line on the existing basis. Our basic basis and principles must be consistent with national strategies and major policies. This is a top-down approach. Second, we must ensure that these products meet the characteristics of central enterprises. Even if a certain strategy is a national priority, if the central enterprises are not particularly compatible with it, we will face some objective factors when compiling indexes and developing products.

At the same time, the index we develop should become a good tool for investors to help them make effective asset allocation. In terms of specific directions, on the one hand, we have compiled some indexes for the central enterprise sector and plan to continue this work; on the other hand, we may expand our vision to the entire state-owned enterprise sector, consider the larger scope of the combination of central enterprises and state-owned enterprises, and develop new index products.

In addition, we can also consider developing some indices that are in line with national strategies and the characteristics of central enterprises in overseas markets, such as Hong Kong stocks or Hong Kong Stock Connect, to provide investors with more effective investment tools and targets. This is roughly our future development idea.

host:Thank you to both guests for your wonderful sharing. Thank you for your attention. (CIS)

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Risk warning: The annual increase and decrease of Rongtong CSI Central Enterprises Technology Innovation Index from 2020 to 2023 were 28.56%, 28.45%, and -25.42% respectively; the annual increase and decrease of Chengtong Central Enterprises ESG from 2019 to 2023 were 28.08%, 18.06%, 20.79%, -12.86%, and 0.97% respectively. The content and opinions in the article are based on the analysis results of historical data, and there is no guarantee that the content and opinions contained therein will not change in the future. This article is for reference only. Under no circumstances does the information or opinions expressed in this article constitute investment advice to anyone. The controlling shareholder and the company have implemented a business isolation system.

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