STAR 50 Index Surges 64% in a Quarter Setting a Record; Earnings Season Becomes Critical Checkpoint for Valuation Validation
Taylor Wilson
China's STAR 50 index jumped 64% this quarter — its biggest gain ever — yet analysts raised earnings estimates by only about 4%, pushing the forward P/E to a record 69×. This means → the coming earnings season will be the hard test of whether this rally has substance or just sentiment.
Up 64%, but profit forecasts moved just 4% — how dangerous is that gap?
AI infrastructure spending and Beijing's push to back domestic tech champions drove the chip-heavy STAR 50 index up 64% this quarter, a record single-quarter gain.
Yet Bloomberg data show analysts lifted earnings estimates for STAR 50 constituents by only about 4% over the same period. The forward P/E hit 69× — also a record.
This means → prices have sprinted far ahead of profit expectations. The gap is held together by confidence alone, and earnings season is the exam that confidence must pass.
How far have individual stocks already run?
Optical-module leader Innolight Technology (中际旭创) surged 132% this quarter. It now trades at roughly 40× forward earnings — above the Dow Jones U.S. Telecom Equipment index at 33× — and sits about 20% above analysts' average price target.
In plain terms = the stock already costs more than most analysts think it should, and it's pricier than its American peers.
Some early results offer reference points: Satellite Chemical guided first-half net profit up as much as 155% year-on-year; chip-test equipment maker Hangzhou Changchuan Technology guided net profit to at least double. Both stocks rose on the announcements.
What signal is the money flow sending?
Shi Junbo, fund manager at Hangzhou Xiyan Asset Management, said sentiment "feels close to a near-term top." He argued AI hardware leaders' share prices have "already priced in current growth expectations — fundamentals alone can hardly push them further."
He noted capital is shifting into niche segments of the AI supply chain — materials and components. This reflects a loss of conviction among some investors in chasing the biggest winners, as they rotate into less fully priced second-tier names.
China's securities regulator recently announced looser listing standards for AI developers and other advanced-tech firms. Markets read this as a strong endorsement from Beijing, sending related stocks higher last week.
Why are Goldman and Morgan Stanley both picking A-shares over Hong Kong?
Goldman Sachs favors mainland A-shares over Hong Kong stocks, arguing that AI profits are migrating to hardware companies and lifting A-share index earnings. Morgan Stanley agrees, noting A-shares hold a higher concentration of "hard-core" tech names.
The market has already reflected this: the STAR 50 surged 64% while Hong Kong's Hang Seng Tech index fell 5.3% this quarter, dragged down by internet stocks tied to weak Chinese consumer spending.
In plain terms = A-shares are winning on "hard tech" — chips, equipment, optical modules. Hong Kong is losing on "soft consumption" — e-commerce, social media, food delivery. The two markets' tech sectors now mean entirely different things.
What is the bull case for saying this isn't the top?
Zeng Wenkai, fund manager at Shengqi Asset Management, acknowledged that A-share hardware tech stocks look expensive versus global peers — but said that is not a reason to turn bearish. "Liquidity can't easily flow offshore. A large pool of domestic capital is concentrated in A-shares, and it keeps pushing valuations higher."
His strategy advice was blunt: "Buy and hold. Don't obsess over comparisons with global peers, and don't fixate on valuation."
Li Hai, fund manager at Hainan Yuhe Fund Management, argued the tech up-cycle is far from over: "The classic signals of a downturn — weakening demand, policy tightening, earnings misses — are all absent." He expects policy support to continue explicitly through 2029.
Where is the answer to whether this rally can last?
Earnings season is the pivotal checkpoint. If profit data can narrow the gap between a 64% price surge and a 4% estimate revision, the rally logic holds. If profits fall short, high valuations become an accelerant for a pullback.
This means → every earnings report over the next few weeks carries outsized importance. These are not just quarterly scorecards — they are verdicts on the market's next direction.
In plain terms = the rally is at a "believe it or don't" stage, and earnings are the only thing that can turn belief into fact — or expose it as fiction.
Content is for reference only, not financial advice.