On Wednesday (August 19), computing power hardware stocks broadly declined, with optical module leaders experiencing sharp pullbacks as Zhongji Innolight and Eoptolink Technology led losses of more than 9%. What are the main culprits behind today's sell-off? Three key factors stand out.

Overseas tech weakness dragged on sentiment: Overnight, U.S. tech stocks suffered a broad slump, with semiconductor, memory, and optical communications leaders all tumbling sharply, directly pressuring comparable sectors in the A-share market. Surging U.S. Treasury yields also played a role, as the 30-year yield climbed to its highest level since 2007, with rising long-end rates significantly compressing tech valuations and driving global risk-off flows from tech into safe-haven assets like banks and gold. On the trading front, heavy overhangs from previously trapped positions in memory and other sectors, combined with recent sharp rebounds, triggered profit-taking and exit selling, while some capital that had positioned ahead of hot IPO listings took profits as catalysts materialized.

After the rapid pullback, what's the outlook? Cao Xuchen, fund manager of the ChiNext AI ETF Huabao (159363), stated that the recent volatility in the computing power sector can be viewed as a technical correction, with the medium-to-long-term thesis unchanged. The overseas news triggered turbulence, but the adjustment reflects a pullback after excessive earlier gains rather than fundamental deterioration. Going forward, leaders with solid fundamentals are likely to continue attracting capital inflows. In the current phase of structural repair, sectors with volume growth, low valuations, and strong fundamentals offer greater sustainability, while price-increase plays have limited support.

Mapping this to the A-share market, Cao noted that in early August, the tech sector experienced a noticeable B-wave rebound, with small and mid-cap stocks showing greater flexibility amid FCC-related developments affecting some companies. Looking ahead after the technical pullback, sub-sectors such as computing chips, optical modules, and servers that combine "volume growth" and "valuation advantages" are expected to become primary sources of quality alpha, with attention focused on directions backed by solid fundamentals and strong earnings visibility.

Using "optics" as the spearhead to position in core AI computing power leaders, attention is drawn to the ChiNext AI ETF Huabao (159363) and its off-exchange feeder funds (A-class 023407, C-class 023408), with the underlying index heavily weighted toward optical module CPO leaders while also covering AI applications to capture the explosive opportunities of the AI mainline.

Data sources: Shanghai and Shenzhen stock exchanges, based on the Guozheng Index as of August 18, the ChiNext AI Index holds Eoptolink Technology, Zhongji Innolight, and TFC Optical Communication at weights of 13.38%, 13.11%, and 10.7%, respectively. Reminder: Recent market volatility may be elevated, and short-term gains or losses do not predict future performance. Investors should make rational decisions based on their own capital situations and risk tolerance, paying close attention to position sizing and risk management.

ETF fee disclosures: When subscribing or redeeming fund shares, agents may charge commissions up to 0.5% of the amount. On-exchange trading fees are subject to actual charges by securities firms, with no sales service fee. Feeder fund fee disclosures: The ChiNext AI ETF Feeder Fund C-class charges no subscription fee; redemption fees are 1.5% within 7 days and 0% at 7 days or more; the sales service fee is 0.3%. The A-class charges a 1% subscription fee for amounts below 1 million yuan, 0.6% for 1 million to 2 million yuan, and 1,000 yuan per transaction for 2 million yuan or above; redemption fees are 1.5% within 7 days and 0% at 7 days or more, with no sales service fee.

Risk disclosure: The ChiNext AI ETF Huabao passively tracks the ChiNext AI Index, which has a base date of December 28, 2018, and a release date of July 11, 2024. Index constituent composition adjusts according to the index methodology, and backtested historical performance does not indicate future index returns. Index constituents are shown for illustrative purposes only, and individual stock descriptions do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund under the manager. According to the fund manager's assessment, the ChiNext AI ETF Huabao carries a risk rating of R4 (medium-high risk), suitable for aggressive (C4) and above investors, with suitability matching opinions subject to sales institutions. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, or any form of expression) is for reference only, and investors bear sole responsibility for their own investment decisions. Furthermore, any views, analysis, or forecasts herein do not constitute investment advice to readers and shall not be held liable for any direct or indirect losses arising from the use of this content. Fund investing carries risks; past performance does not represent future results, and the performance of other funds managed by the fund manager does not guarantee the performance of this fund. Please invest with caution.