The latest quarterly review from MSCI Inc has resulted in 33 stocks being added to its China Index while 32 are removed, with the changes set to take effect after the market close on August 31. This index serves as a key benchmark for global investors tracking Chinese equities, with its components selected primarily based on market capitalization during quarterly reviews.

The newly added stocks predominantly come from the technology and innovation sectors, having seen significant share price appreciation and market value growth over the past year, which qualified them for inclusion. In contrast, the removed stocks are largely from traditional industries, which have experienced notable market value declines during the same period.

Inclusion in the MSCI China Index means these stocks become part of the broader MSCI Global Standard Index Series, attracting proportional passive fund allocations. Active fund managers, who often benchmark against this index, may also follow suit, creating short-term capital inflows and potential price support for newly added stocks. Conversely, removed stocks could face selling pressure and short-term headwinds as funds rebalance.

This adjustment underscores a structural shift in international investor preferences toward China's emerging industries. The 33 new additions span sectors such as chip semiconductors, computing power, humanoid robots, big data models, biomedical technology, and advanced materials. These areas are central to China's economic transformation and align with the country's next five-year plan priorities.

Previously, we identified six key beneficiaries of the AI technology wave: chip semiconductors, computing power, humanoid robots, commercial aerospace, solid-state batteries, and biomedical technology. Over the past year, semiconductor and computing power sectors have shown the strongest performance, while recent weeks have seen momentum in innovative drugs and humanoid robots, reflecting sustained market interest in technological innovation.

From a fundamental perspective, China has achieved significant breakthroughs in semiconductors, computing power, large models, and humanoid robots. Following the buzz around DeepSeek, the recent launch of Kimi's K3 model has ranked among the top global models, boosting global confidence in China's tech innovation. In the biomedical field, China is increasingly becoming a global research and development hub for large pharmaceutical companies through business development deals and overseas expansion, with substantial growth potential ahead.

It is important to note that index adjustments are dynamic. Companies added today may be removed if future performance disappoints, leading to share price declines and market value drops. Conversely, previously removed stocks with improved fundamentals and rising market caps could be reinstated. Investors should therefore treat these changes as a reference rather than a sole decision-making criterion, as long-term stock performance ultimately depends on the sustainability of a company's earnings growth.

With the semi-annual reporting season in full swing, we recommend a return to value investing, focusing on fundamentals, earnings growth rates, and industry leadership. After a period of valuation adjustments and speculative froth removal from late May to early August, tech stocks now appear to offer compelling entry points, with a new rebound cycle underway. The leading themes are expected to remain technology-driven sectors with strong earnings support.

In terms of strategy, we advised caution and profit-taking when the market was near its peak in late May. By early August, when tech stocks had sold off to attractive valuations, we recommended overcoming fear and accumulating high-quality tech leaders to capture the next wave of recovery and portfolio growth. This latest MSCI adjustment reinforces confidence in a technology-led market rally and could help deepen the trend.

The MACD golden cross signal is forming, and these stocks are showing strong momentum. This information is for reference only and does not constitute investment advice. Investors should assume all risks associated with their own decisions.