China's innovation-heavy benchmark is on a tear, but hardware stocks need earnings to back up the hype
China’s STAR 50 Index, the benchmark tracking the country’s most innovation-heavy public companies, has been putting up numbers that would make a meme coin blush. The index closed near 1,989 on June 24, with a monthly gain exceeding 13% and a three-month return of 57%.
One-year gains have exceeded 107% in certain trackers. For context, that kind of performance from a major national equity index is roughly the equivalent of watching a blue-chip stock market behave like a venture capital portfolio, except this one has the backing of the world’s second-largest economy.
What’s driving the surge #
Beijing has been channeling policy support toward sectors including quantum computing, 6G, and robotics, creating a tailwind for the kinds of companies that populate the STAR Market. Think of the STAR board as China’s answer to Nasdaq, except with even more explicit state endorsement of the sectors it covers.
Top holdings in the index have been direct beneficiaries. Companies like Zhongji Innolight, Eoptolink Technology, and Sungrow Power Supply delivered average returns of around 33%, propelled largely by infrastructure buildouts tied to artificial intelligence.
Zhongji Innolight and Eoptolink sit squarely in the optical interconnect space, which is essentially the plumbing for AI data centers. Sungrow, a power supply company, benefits from the simple reality that all those GPUs need electricity, and lots of it.
ETFs are catching the wave #
The rally hasn’t gone unnoticed by fund managers. Notable ETFs tracking the STAR Market have posted strong results. The CSOP STAR and ChiNext 50 ETF and KraneShares SSE STAR Market 50 (KSTR) both yielded returns in the range of 35% year-to-date through May 2026.
For 2025 as a whole, related ETFs and the index itself posted full-year returns in the 34-36% range. So the current surge represents an acceleration of a trend that was already well underway, not a sudden reversal.
The earnings question #
The core tension in this rally is straightforward: Chinese hardware technology stocks have risen dramatically, but they need to show strong earnings to sustain the move. Valuations have expanded significantly faster than revenues, which means the market is pricing in a future that hasn’t fully arrived yet.
Watch for upcoming quarterly results from the index’s top constituents. If companies like Zhongji Innolight and Eoptolink can demonstrate that AI infrastructure spending is translating into actual order growth and margin expansion, the rally has legs. If the numbers come in soft, the 107% gain starts looking less like a new paradigm and more like a setup for mean reversion.
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